We are currently in the middle of helping two almost identical recruitment companies with management buyouts.
Other than their actual market sectors (which are very different) both firms are remarkably similar and our route to taking them on board as clients identical.
Both approached us in the summer of last year (2015) and we keen to sell. Both had been set up by two friends/colleagues about 8-10 years ago and all of them wanted to leave to do other things (property development seemed a popular new vocation).
Both firms were totally permanent driven and had no contract or interim business to speak of and both firms still had very active directors. That is to say, they were major billers and still leading from the front; with clients they had known for years.
Neither firm’s initial valuation was of any interest to the owners and so we suggested an alternative to the typical sale they were seeking.
Needless to say, our advice to both firms was almost identical as the firms themselves.
We suggested arranging a management buyout for them.
Our reasoning was based on the following: -
1. A large proportion of the income and value of the business rested with relationships and fee generation of the owner/directors themselves and so would be of questionable value to an outside purchaser when they left the firm.
2. The senior consultants/managers in the firm had a good understanding of these long-term clients the founding directors had secured and if relationships could be transitioned correctly, the value would still be maintained within the firm.
We created an ‘operating board’ of ‘directors-in-waiting’ from the senior team at both firms and set them a road map to raise the capital buy out the founding directors and transfer the relationships the firms were built on, all over an agreed time frame.
Obviously, this sort of thing isn’t as quick as a trade sale or an investment sale but it achieved real value for the exiting directors and real opportunity for the next generation of directors.
Whilst it’s difficult to accurately say the increase in exit value that was achieved by this strategy because neither firms have fully completed the transaction, it is reasonably conservative to state it will be at least double what would have been achieve without a staged MBO whilst still leaving a very attractive, profitable business for the new owners to further develop.
“In certain circumstances a management buyout is a wonderful tool to consider but make sure you right advice to help with the in planning and execution. Done well, it can achieve a terrific balance between a good exit and company with a great future.”
If you are interested in discussing what AA Chase could do for you, call our Head of M&A, Andrew Thomas on 07973 832216 for a confidential and no obligations chat.
