When the chance to take part in a management buyout (MBO) arises, many people don’t think the process is within their means – and allow the opportunity to drop. Others begin the MBO process, and later find themselves out of their depth.
In this article, co-written by Firebird founders Stewart Lambert and Ian Finlay, we explore the Dos and Don’ts of MBOs, and describe how to best smooth the way for a successful buyout.
It was an MBO in the early noughties that bought the two of us into each other’s orbits. Ian had been presented with a brilliant opportunity: to manage and buy a family travel company from its retiring owners, with the aim of propelling its growth and value significantly. He had the vision and the energy, but lacked the required funds, and – like so many promising managers offered the chance of an MBO – set out to seek those assets from a third party.
Ian did his research and consulted his bank, who pointed him in the direction of private equity houses. Carefully writing his business plan, and selecting the houses for which the deal looked to be an ideal fit, Ian then made contact with the 15 most promising options. From these, he received just three responses: two turning him down; the third recommending he find himself an adviser.
Determined not to give up with the venture, Ian opted to follow that recommendation. Among the range of advisers he met, one clearly stood out for his honesty, credibility and mindset; for his knowledge on when to hold firm and when to proceed; for putting his client’s needs above his own financial interests, every time. That person was Stewart.
A few weeks later, with Stewart’s insight and guidance, the same doors that were previously closed to Ian opened. The private equity houses that had ignored him, and turned him down, were now keen to meet and discuss funding options. The result was a successful MBO, followed by a period of tremendous growth for the company, and the sale of the company 15 months later for more than 3x what it was acquired for.
"If your idea is good, you are good, and the market is attractive, your MBO ambitions are very likely to be fulfilled"
If your idea is good, you are good, and the market is attractive, your MBO ambitions are very likely to be fulfilled. At the same time, regardless of your skillset and tenacity, it is also highly likely that you’ll benefit from the outside support of someone who knows the process inside-out.
The following MBO Dos and Don’ts are what we have acquired in our 55+ years of experience in the travel and leisure industry. Now you know the circumstances that saw us start to collaborate, the first point is unlikely to surprise you:
DON’T underestimate the time, networks and know-how required to complete an MBO successfully. While it’s possible to proceed with an MBO solo, the old adage applies: you don’t know what you don’t know. Have you got the best contacts? The right experience? The full legal knowledge? The necessary headspace? The answer for most people, who are simultaneously running a business while conducting an MBO, is unlikely to be yes.
DO gather all the information you need to make your MBO proposition as attractive as it can be. Good data, good projections, and a good grasp of the numbers are essential. A sophisticated, user-friendly proposal, with a strong story, will take you far in terms of funding options.
DON’T try to blag your way through the process. Challenges will always arise during an MBO, and acting as if you have everything covered when you don’t can leave you open to serious obstacles further down the road – including the risk of a promising deal falling through.
"Your adviser should be your mentor and guide, able to tell you what's standard and spot the red flags"
DO find an expert adviser you can trust – and listen to their advice. Build a strong relationship with them, and be willing to hear uncomfortable truths, or suggestions that you may be making a bad decision. The right adviser can sit outside the situation, seeing the whole picture without being emotionally engaged. Your adviser should be your mentor and guide, able to tell you what’s standard and spot the red flags, rather than giving you false hope to rush a deal through and collect their fee.
DON’T be afraid to pull out of an investment proposition if the relationship does not feel right to you. An adviser in tune with your personal goals and development will support this, and encourage risks in the short-term for a more favourable long-term outcome that works for you.
DO allow your adviser to take the flack, managing and delivering messages on your behalf. A key part of their role is to filter information between management teams and vendors, facilitating difficult conversations so you don’t have to. Tension points and areas of conflict are common during MBO negotiations; the right adviser will take these in their stride, minimise the burdens, and smoothly navigate you from pitch to deal, and beyond.
DON’T assume that an MBO is out of your reach. If all you are missing is finance, there are a host of exceptional opportunities out there, ready for you to unlock. Keep a clear vision of where you want to go, maintain that focus and energy, and your big ambitions could lead to some very big gains.
If your business is in the travel, leisure or education sector, our team of Firebird directors is here to share their advice from both sides of the table – with decades of insight acquired through sales and management, as well as within private equity.
To learn more about MBOs through Firebird, contact us at www.firebirdpartnership.com
Stewart Lambert and Ian Finlay are friends and highly skilled business leaders with over five decades of experience in travel and leisure. Together with Firebird partners Steve Allen, Chris Thompson and Charlie Rigby, their expertise encompasses strategy, analytical planning, budgeting, people management, M&A, corporate finance, exit planning and raising funds.
*
Also by Stewart Lambert:
Also by Ian Finlay: