Paul Stringer, corporate finance partner at Cowgill Holloway LLP

When carrying out a MBO, there are various considerations that the management team should take into account. Essentially, these form three key factors that the management team need to agree on – the price, business plan and form of funding.  

The price must be agreed between the management team and vendor, as the size of the transaction will determine how the MBO is funded. MBOs are frequently seen as too risky for a bank to finance through a loan, in which case the funding may be sought from a venture capital or equity provider or from the shareholders investing their own cash. The consideration may be deferred or immediate.

  In this current economic climate, debt is hard to come by. Therefore, a management team can widen its options by looking at other forms of funding such as asset-based or invoice finance.

  If the MBO is being funded by a VC or equity provider, a credible adviser will be needed to present the business plan to potential funders. Since the business plan will drive a number of the investment and banking decisions, it must meet and be consistent with the requirements of the VC or equity provider. In MBOs, the due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them.