Running a business better than your boss

Management buyouts and buyins have pitfalls as well as bonuses, says Roger Trapp

It is a rare employee who does not think he or she can run their company better than the existing management. However, even those fairly high up in the organisation rarely get the opportunity. This is generally because the enterprise is not for sale. But even if it is, a lack of finance can put a brake on such ambitions.

This is where leveraged buyouts come in. Basically acquisitions largely financed by borrowing that is supposed to be paid out of future cash flows, they are increasingly being used to put management in control. According to figures from the Centre for Management Buyouts Research, management buyouts and buying activity has increased dramatically over the past 15 years. Last year 537 such deals, worth pounds 3.4bn, were concluded.

As the accountants Coopers & Lybrand point out in a recently published guide on the subject, many managers have already become wealthy by buying the business they used to manage, or buying another business and improving performance. However, not everybody who goes down this road emerges happy and rich.

The guide is designed to increase the proportion who do. In particular, the firm stresses that management buyins (MBIs) - where a team of managers is supported by financial institutions to acquire a business it reckons can be improved through its management expertise - are essentially a different proposition from management buyouts (MBOs), where the existing managers acquire the business from its owners.

It says MBIs are traditionally riskier than MBOs for a variety of reasons:

nAn MBI team does not have the "inside knowledge" of the company that an MBO team does, with the result that the plans might go wrong.

nSellers of MBI targets are often less inclined to do a deal than they would if an MBO team was involved. This reduces the chances of the MBI team obtaining the business on favourable terms.

An MBI might require greater preparatory work in identifying a suitable business to buy and putting together the finance and the team, which also diminishes the chances of a successful deal.

However, this does not mean a deal can be done. MBOs and MBIs take place in every type of industry and they come in all sizes. Success is largely down to the quality of the management and its ability to work together, says Coopers & Lybrand. But suitable targets tend to fit one of the following categories: non-core businesses, profitable or potentially profitable subsidiaries of a cash-starved group, businesses that do not generate sufficient returns on capital employed, and family-owned businesses with succession problems.

The next stage, of course, is obtaining the finance, and here Coopers & Lybrand plays its card. In line with other large accounting firms, it has made great strides in corporate finance recently - picking up deals that the merchant banks have traditionally shunned as not being big enough to be worth their while.

In the past three years, it claims to have acted in more than 30 per cent of all British management buyouts and buyins by value. It has been lead adviser in 130 of the deals in which it has acted. But despite this prominent role, it does not have direct access to funds: it merely advises businesses on where to obtain the money.

And here begin a whole new series of hurdles, including persuading would- be investors that the business plan is sound, and satisfying their due diligence investigations. And that is before you even sit around the table to hammer out a deal.

Still interested? Contact Coopers & Lybrand, or indeed any other large accounting firm, in London or at one of the regional offices.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
Denny Miller in 1959 remake of Tarzan, the Ape Man
people
Arts and Entertainment
Cheryl despairs during the arena auditions
tvX Factor review: Drama as Cheryl and Simon spar over girl band

News
Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
news
News
i100Exclusive interview with the British analyst who helped expose Bashar al-Assad's use of Sarin gas
PROMOTED VIDEO
Sport
Angel Di Maria celebrates his first goal for Manchester United against QPR
Football4-0 victory is team's first win under new manager Louis van Gaal
Arts and Entertainment
art
News
newsIn short, yes
Arts and Entertainment
Rob James-Collier, who plays under-butler Thomas Barrow, admitted to suffering sleepless nights over the Series 5 script
tv'Thomas comes right up to the abyss', says the actor
Arts and Entertainment
Calvin Harris claimed the top spot in this week's single charts
music
Sport
BoxingVideo: The incident happened in the very same ring as Tyson-Holyfield II 17 years ago
News
Groundskeeper Willie has backed Scottish independence in a new video
people
Arts and Entertainment
The Doctor poses the question of whether we are every truly alone in 'Listen'
tvReview: Possibly Steven Moffat's most terrifying episode to date
News
i100
Life and Style
Cara Delevigne at the TopShop Unique show during London Fashion Week
fashion
News
The life-sized tribute to Amy Winehouse was designed by Scott Eaton and was erected at the Stables Market in Camden
peopleBut quite what the singer would have made of her new statue...
Sport
England's Andy Sullivan poses with his trophy and an astronaut after winning a trip to space
sport
News
peopleThe actress has agreed to host the Met Gala Ball - but not until 2015
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Day In a Page

    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week
    The fall of Rome? Cash-strapped Italy accused of selling its soul to the highest bidder

    The fall of Rome?

    Italy's fears that corporate-sponsored restoration projects will lead to the Disneyfication of its cultural heritage
    Glasgow girl made good

    Glasgow girl made good

    Kelly Macdonald was a waitress when she made Trainspotting. Now she’s taking Manhattan
    Sequins ahoy as Strictly Come Dancing takes to the floor once more

    Sequins ahoy as Strictly takes to the floor once more

    Judy Murray, Frankie Bridge and co paired with dance partners
    Wearable trainers and other sporty looks

    Wearable trainers and other sporty looks

    Alexander Wang pumps it up at New York Fashion Week
    The landscape of my imagination

    The landscape of my imagination

    Author Kate Mosse on the place that taught her to tell stories