Running a business better than your boss
Management buyouts and buyins have pitfalls as well as bonuses, says Roger Trapp
Wednesday 23 August 1995
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
- 1 Jeremy Clarkson 'sees no problem' with his racist language on Top Gear, says BBC
- 2 'Alien thigh bone' on Mars: Excitement from alien hunters at 'evidence' of extraterrestrial life
- 4 London restaurant 34 creates champagne glass modelled on Kate Moss’ left breast
- 5 ALS ice bucket challenge co-founder Corey Griffin drowns, aged 27
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again – it would be immoral to bring it into the world'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Disgusting, frustrating, but intriguing: how the country really feels about its politicians
Bin bag full of cats' heads discovered near Manchester's Curry Mile
iJobs Money & Business
£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...
£55000 per annum: Harrington Starr: A financial software vendor at the forefro...
£600 per day: Harrington Starr: .NET Developer C#, WPF,BLL, MSMQ, SQL, GIT, SQ...
£65000 per annum: Harrington Starr: A financial software vendor at the forefro...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony