Over the last few years there has been a growing trend for employees and management teams to buy out their bosses, as many owners have decided to take a step back and consider their future options. They see management buyouts as a way of rewarding their trusted teams and protecting the legacy of the business they worked hard to build.
For management teams, it’s a once-in-a-lifetime opportunity to reap the rewards of ownership and grow a company they already know and understand well. With their ambition and expertise, they’re often the ideal candidates to take the company forward.
However, many management teams believe that a management buyout is out of reach due to the large amount of capital required. The good news is that getting the finance together to buy a business is easier than you might think.
Getting finance for buyouts is not only achievable but attractive for management teams, as they may only need to put in a relatively small amount of money themselves.
The Development Bank has an expert team with over 20 years of experience structuring finance for business succession and has already helped nearly 200 management teams in Wales achieve their goals. It has a dedicated £25 million fund financed by the Welsh Government and Clwyd Pension Fund, providing flexible loans and equity investments between £500,000 and £3 million.
Investment for Pontyclun printing specialists
A key advantage of a management buyout, and the reason so many businesses choose to take this route, is that it normally offers a smoother transition and easier completion. Entrusting a business to the team that knows it best can reduce business disruption, protect jobs, and keep the business’s culture and values intact.
This was important to specialist printers Reel Label Solutions when they were exploring their succession options. The business had been approached in relation to a trade sale but wanted to avoid any potential relocation from south Wales. So, they decided to pursue a management buyout instead, which would ensure a more seamless transition and keep the business local.
The Development Bank invested a mix of equity and loan funding totalling £1.2 million to support the buyout and also to provide finance for capex investment, giving the business additional headroom for future growth.
Reel Label Solutions’ managing director, Jonathan Wright, said: “We’ve always been mindful of the need to think long-term about our succession planning. We had the opportunity to proceed with a trade sale but none of us were comfortable with what this might have meant for the team.
"That’s why we turned to the Development Bank of Wales – we wanted to understand our options and do what was right for us as individuals and the business as a whole. In turn, they structured a deal with a mix of loan and equity that worked for all shareholders and created a sustainable future for the entire team here in Pontyclun."
A year after Reel Label Solutions completed its management buyout, the Development Bank re-invested so the company could buy new machinery, helping it to scale up production to meet increasing demand and further grow the business.
Long-term investment partner
Ongoing support is part of the added value the Development Bank can offer management teams. A long-term investment partner with a personal and flexible approach, it shares their goals and is there to offer support throughout the journey.
Getting the right mix of finance is important too. For succession transactions, equity alongside loan funding can provide a flexible solution enabling the business to grow sustainably. The Development Bank always takes a minority equity stake and provides ongoing strategic support with value creation in mind to help management teams take their business forward successfully.
Scott Hughes, Senior Investment Executive at the Development Bank of Wales, said: “We are seeing an increased appetite for succession transactions since the pandemic. Management buyouts are an attractive option for business owners looking to get value from the business while preserving their legacy.
“With the help of equity finance, which is more of a partnership than other forms of investment, management teams can focus on strategic growth.
“From our dedicated succession fund we can offer a mix of loan and equity funding tailored to suit the needs of each business. Our funding can cover the vast majority of the total finance, so only a small investment from the management team is required.
“Many management teams have the ambition and capabilities to successfully become owners of the business they work in. Our aim is to make it as easy as possible for them to achieve management buyouts, and to deliver continued support to help the business grow and succeed post-buyout.”
Visit the Development Bank website, call 0800 587 4140 or contact the team to find out more.
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