Managing buy-outs

20 January, 2006
Forget looking for a new job in the New Year, it may be easier to buy the company you already work for, says a guide to MBOs
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Des Kingsley led an MBO of Oakdale in 2004

It may surprise some directors to discover how much money they can borrow. Most financial backers expect directors to put up personal funds amounting to no more than six months’ to a year’s salary.
In 2004, 698 management teams bought their own companies, borrowing £20.5bn to do so, with a third buying family or private firms.Des Kingsley, chief executive of malt loaf specialist Oakdale Bakeries completed a management buy-out (MBO) in August 2004. With sites in Leeds, Doncaster and Wigan, Oakdale Bakeries supplies ambient cakes, fruit pies, malt loaves and tarts to foodservice businesses.He says: “The MBO experience was more time consuming and difficult than I expected, and it pitches you into completely unknown territory – but it’s absolutely worthwhile.”Non-executive helpIn the case of Oakdale, the sales and finance directors were part of the buy-out team, but none of them had experience of complex financing, running a PLC or leveraging deals.They turned to a company called Directorbank – a niche recruiter of executive and non-executive directors for MBOs – for help.Jonathan Hick, chief executive of Director-bank, says that if a management team does not have all the skills to attract funding, there are plenty of directors keen to come on board as non-executive directors to make deals work.Directorbank helped find two non-executives who supplemented the Oakdale team’s skills. These were Chris Attrill, former finance director of Verna Group and chair of Oriental Express Frozen Foods, and Malcolm Little, former chief executive of United Biscuits UK. The recruiting firm has recently produced a guide on how to assess if your company could be ready for sale and whether funders are likely to back your team. The guide gives an overview of what is involved, how long it takes and the questions you will be asked by backers.Jonathan Hick says there are several ways to spot a company that could be up for sale. “Often a founder has spent years building up the business and now wants time and money to do other things. They may be flying off to their house in Tuscany every weekend or going on the boards of lots of charities. You could be running a division that no longer fits into a group’s activities – possibly because of a takeover. Or your part of the business may flourish better if independent.”Nicol Fraser is director of Dunedin Capital Partners, which has financed MBOs across the country. He says the first thing funders look for is a vision for the business in a growth market. They also look for profitable, cash generating companies – to pay down the debt – and, above all, the quality of the management team.Mr Fraser says: “I want to look a management team in the eye and believe it can deliver what is set out in the business plan.”l Directorbank offers free consultancy to help directors assess if their business has potential for an MBO. For a free copy of the guide, Buying your Boss’ Business, contact Jonathan Hick of Directorbank on 0113 297 8000 or go to www.directorbank.com



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