What happens when after many years of running a successful business you decide to retire?
Do you want to sell your business for the maximum price or do you want to safeguard the future of your loyal management team?
The two aspirations need not be mutually exclusive…
Very often the remaining management team are ideally placed to buy you out and to continue your legacy by taking the business forward. They know your business inside out and they have contributed to its success to date.
The question is quite simple – how do they raise sufficient money to purchase the business?
The answer is more complex…
Quite often there will be no freehold property to secure a loan against and the buy out team may not have enough equity in their houses to secure a loan. The answer therefore is to speak to a specialist commercial finance broker who knows the market and the best lenders to approach!
We were recently approached by one of our existing clients to assist the management team to raise £750,000 to buy out the retiring partner for a total remuneration of £1.5M.
The team had already raised £750,000 from their own resource and needed the balance to complete the purchase.
They spoke to their own bank who offered £500,000 but wanted full directors’ personal guarantees supported by charges over their private houses.
We were able to secure the full amount of £750,000 through a main stream bank with only a 50% directors personal guarantee and no charges on any of their houses.
The interest rate was competitive and the clients were really pleased to accept the offer.
In addition to the initial pay out of £1.5m, the retiring director was retained on a salary to ensure a smooth transition for a period of 3 years.
Very often ‘deferred consideration’ will also play an important role in the buyout process and the broker and the clients accountant should work together to achieve an equitable solution for both the buyer and seller especially when both parties are known to each other and have worked together for several years.
If you wish to discuss any issues raised or seek advice on your own individual ‘MBO’ circumstances, please call Kevin Beck on 01322 558089 or email email@example.com.