Vendor-Funded Management Buy-Out

There are a number of risk factors associated with a Trade Sale or a Management Buy-Out, for example, each method could potentially require a considerable amount of time and focus from those running the business. We have developed an innovative form of MBO that we call a Vendor-Funded Management Buy-Out. It gives you a much higher degree of control over the whole process.

Our Process

We start with your personal objectives and take you through the possible structures that would work for you and your team.

You will of course only want to use this structure if you have absolute confidence in your management team. Where you do it can be a great way to transfer ownership .

It may be that a traditional Management Buy Out or a Trade Sale are not realistic options for your business for a number of reasons, so a Vendor-Funded Management Buy Out could help you to realise your investment.

With the V-F MBO everyone can be a winner. It can align the interests of you and your co-owners with key members of your management team.

You may want to plan your V-F MBO many years ahead of your retirement. Combined with an employee share scheme it can be a great motivational tool

Your Personal Objectives

The flexibility in the Vendor-Funded Management Buy-Out allows Everyman Legal to put together a dedicated legal framework for you to suit your company and your management team. Properly structured you will pay tax at just 10% and only as you receive the funds.

The Vendor-Funded Management Buy-Out is an MBO sale by one or more owners to key individuals of the existing or a strengthened management team. A primary exit (which may be three to five years in the planning) allows for you to sell a majority interest (if not all) to the management team and a secondary exit (which may be many years in the future) provides for the remaining equity to be sold as well should you wish to retain a stake in the business. The buy-out is substantially funded out of the future cash flow of the business. Your risk of losing control before receiving the full agreed price can be addressed in a number of different ways including a reasonable upfront payment perhaps funded by bank debt or taking security over available assets.

The Ownership Transition Process

After all you know and trust your team and they know your business. With a VF-MBO you may retain a material interest (perhaps 25%) so can participate in future growth and can continue to be involved in the business as much or as little as you wish.

Your retained equity interest means you are becoming an investor and banker to the deal. With the right professional support so that you adopt the right legal framework, this makes a lot of sense. You may be the best person to help your team grow the business to the next level. You and the team may even see the V-F MBO as a stepping stone to a trade sale (or even an IPO) many years in the future.

A Solution for Your Business

It may be that your business would be a difficult one to sell, particularly at the price you want for it. It may have a heavy dependence on one or two key customers or a dependence on a supplier. The business may be very dependent on one or more members of your team who may not be motivated by you selling to a third party.