Succession Blog Issue Three – Complete Control


In the previous blog we explored the benefits of an Employee Management Incentive Share Option Scheme. This blog focuses on the importance of advisers in assisting to control the MBO process and achieve a successful buy out.

If you are the owner of a small-medium sized business and want to facilitate your exit or a management buy out, then you and your advisers need to focus on what you can control in the process in order to ensure the deal completes.

Taking control means starting with a plan potentially two to three years before you want to exit. This is to allow plenty of time to identify issues and address them.

Potential Issues

Such issues could be in the capabilities of your accounting and IT systems in order to better measure, improve and evidence profit growth. Or, it could be that you need to recruit in a key customer facing or technical role to allow you to focus your time on your succession plan rather than spending too much time in the business.

Important Questions

Understanding how others view the resilience of your business will help drive up the value of your shares and should benefit normal trading.

For instance, ask yourself the following questions:

  • Would a buyer value a five year sales contract more than one with six months left to run?
  • Will an investor value a 10 year lease of your premises or one with less than one year remaining?
  • Would a new owner value a customers framework agreement more than one with guaranteed volumes and pricing?
  • Will a funder value your subcontracting arrangement more than a service where your intellectual property meant that your services were embedded in the design of your customers products?

There are no simple answers to these questions that apply in all circumstances. However, by thinking about them, you are able to see other external perspectives and more equipped to better control and influence outcomes.

Staying Focused

Keeping your eye on the business is vital – too often the time consuming nature of planning and the final legal stages of a deal can distract vendors and management from controlling the business. Under performance against budget in the final months of a deal can make investors and funders uncertain. It can also cause problems in the deal itself at an important time for negotiations.

Taking Time Off

With the extra time and stresses of getting the business ready for succession, remember to take a holiday. The more holidays you take, the more you prove externally that your business does not rely upon you. This is a key part of resilient business planning and proving to new funders, buyers and yourself that the business will succeed after you cease to own it. It will vastly improve your ability to complete the deal.

The final blog will explore the best time to start planning your exit and retirement.

If you have any questions or if you would like some more information about EMI, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Corporate Finance team.

This article originally appeared on the blog of our member firm, Tait Walker.