Graeme recently developed a guest blog post for We Sell Any Company which explores a potential fund raise for a Management Buyout (MBO) or Management Buy-in (MBI).
Read the post here or read the summary below…
Essentially we need to know if the acquisition is a share purchase or an asset purchase. A share purchase will involve taking over a company i.e. taking over the legal entity which will include all of its assets, liabilities and obligations (including any inherent or historic problems). An asset purchase however, is the transfer of a specific business activity and related assets and employees.
It’s crucial that the client understands how and why the business has been valued at the agreed amount, and how and when this value is achieved. Generally, consideration is structured in the following ways;
- Payment in full to the outgoing owner upon deal completion
- An element of the payment to be paid upon completion with the remainder of the consideration deferred over a set period of time (deferred consideration)
- An element of the payment to be paid upon completion and the business owners are financially incentivised to manage the company for a period of time with the ability to earn higher payments as set milestones are achieved (Earn Out)
Now comes the tricky bit. Does the acquiring party have the means to pay for the transaction themselves or will they need to raise finance to fund the acquisition? Typically, our clients need to raise funds to facilitate an MBO and MBI.
Remember choose a good corporate finance advisor as it can save you a lot of money in the long run!