Is now the time to sell up?
Many business owners are re-evaluating their future plans as a result of the pandemic. Some are finding that their thoughts on retirement planning are somewhat different now than they were back in 2019. Some owners have enjoyed more free time as their businesses have been forced to shut during the lockdowns and others have enjoyed more time at home as travel and office working has been discouraged.
In some cases exit plans have accelerated and business owners are looking at what options there are to achieve a sooner than expected exit. We consider some possible solutions in this article.
Management buy outs (MBOs)
This is where the current management team purchases the business from the existing owners. The management team will have significant knowledge of the business so often departing owners are keen to leave the business in familiar hands. However, funding a purchase can often pose a challenge for the management team who may need to seek sources of finance for this. Private equity can be a useful source of funding. We are also increasingly seeing more creative funding in MBOs such as Asset Based Lending and invoice discounting in addition to the more mainstream bank finance. We have acted for a number of sellers and management teams this year who have used a mixture of Asset Based Lending and private equity lead debt finance, which demonstrates the maturity of the financing market in the North West. With credit being freely available to the right management team and business, now is the time for sellers to start planning this type of transaction. Bermans has a trusted network of corporate finance advisers and funders which we can work with to make a transaction happen.
Other challenges that often arise in these deals include the management team trying to negotiate a deal whilst still working in the business on a day to day basis and also negotiating a commercially beneficial deal with your bosses can be tricky for some.
Management buy ins (MBIs)
This is where any external management team purchases a business. They are likely to have extensive industry knowledge but will not have specific knowledge on the business so expect much more due diligence than you would get in an MBO and demands for more robust post transaction protection.
A new management team may cause unrest in the existing workforce; owners must be mindful of this in negotiations so as to avoid an employee exodus pre-deal.
Employee ownership trusts (EOTs)
We have written a number of recent articles (see below) about the rise in popularity of employee ownership trusts as part of succession planning. EOTs allow employees to basically take a stake in the owner’s business.
Perhaps the most famous employee owned company is John Lewis but recently owners have been using the scheme as a way to exit their business. In 2019, Julian Richer sold 60% of his shares to an Employee Benefit Trust which effectively saw him hand over a majority of his company, Richer Sounds, to the employees. At the time Richer was turning 60 and he cited the death of his father at age 60 as a catalyst for the sale – stating he was keen to be around to help a smooth transition of the business. Richer was set to initially net almost £10million from the sale but gave £3.5million of this back to be paid as bonuses to staff based on length of service.
EOTs are proving popular in a wide range of sectors but especially so in professional services. Many owners see them as a more hassle-free way of transferring ownership in the business.
Sale to third party
Selling to an independent third party is an option open to some, often a rival business or private equity. The recent bids for Morrisons supermarkets is a notable example.
Independent sales often take a long time to negotiate and plan.
Solvent winding up
We have seen business owners effectively walking away in the last 18 months. This can happen sometimes if there is nobody to pass the business on to or because of illness/a life changing event of the owner. Sometimes owners decide to wind down solvent businesses rather than pumping further funds into them if they are concerned about their prospects of survival.
No two businesses are the same and it is important to take early advice to evaluate what options are open to you if you are looking to exit. Often an exit can take a lot longer than the owners have anticipated, especially if new structures such as employee ownership trusts need to be set up or if funding needs to be put in place.
Get in Touch
Its always wise to get in touch with your advisers early and our Corporate team will be please to assist and put you in contact with advisers who will help make it happen.
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