2017 witnessed a significant increase in Management Buyout (MBO) activity, a trend that stems from business owners wanting to manifest the value within their companies via an exit.
The total value of MBO deals rose 4% to £2.7 billion in 2017, from £2.6 billion in 2016.
A general feeling of political uncertainty, perhaps initiated by the closer than anticipated outcome of the 2017 General Election, could have added to the MBO upturn. Owners are thinking about ways to reduce risk, in the event that a new government equates to the loss of favourable tax incentives, including Entrepreneur’s Relief.
Funding an MBO is also increasingly more straight-forward, as a result of the need to employ excess capital within private equity firms. Globally, uninvested capital hit a record high of $1.7 trillion in December 2017, according to Bain & Co.
Furthermore some of the traditional high street lenders have now refocused toward supporting MBO’s with new products, including service businesses where tangible security is very limited.
Technology firms presented the largest percentage of MBO’s in 2017 (20%), with industrials coming in at 11% and manufacturing 9%.
Scott Lindsay Corporate Finance Partner, stated that “MBO’s remain attractive as they can provide greater certainty to business owners of a deal completing whilst also remaining an important opportunity to incentivise management”
“The issue with MBO’s has often been around valuation concerns in comparison with a third party sale. However with the funds private equity firms are eager to allocate and traditional bank lending refocused toward supporting these transactions, MBO’s are bridging the valuation gap and can provide a rewarding transaction for all stakeholders”.