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Management buyout at IPE
IPE, which provides technology and systems integration services to leading broadcast media organisations has completed an MBO.
Some business owners like the idea of taking control of their exit by exploring a management buyout or Employee Ownership Trust.
Certainty is a scarce commodity in business right now. So if you’re considering exit and succession rather than waiting for an approach from a buyer, or the delay and complexity of a company sale process, many business owners like the idea of taking control and exploring management buyout (‘MBO’) or employee ownership trusts (‘EOT’) as alternative options. For that reason, PEM Corporate Finance has advised several MBOs already this year.
Here’s five reasons to explore a management buyout or employee sale in 2021:
You control the process if you work with your adviser to structure a deal that’s fundable, meets the needs of the company and you as business owner, and will appeal to your team. You can safely and confidentially explore your options.
Funding is available to support MBOs and EOTs. The clearing banks have limited appetite right now to go beyond their existing customers but there’s plenty of alternative lenders keen to fund such deals. Private Equity houses too have more money to invest than opportunities to do so. They like buyouts although it’s harder to get them to fund EOTs due the difficulties around a later exit.
Using an MBO or EOT to secure your exit and succession can be hugely flexible. Many owners chose to keep a stake in the business for a second bite at the cherry in terms of value growth. The deal for employees and key managers, and the funding structure, can be customised.
Buyouts and employee deals can be done in as little as three months in contrast to a full-blown sale process which could take 6 to 12 months. If you want to do a deal in 2021, this will give you head start.
EOTs are very tax-efficient for the sellers who pay no tax. Done properly, MBOs are nearly as tax efficient and capital tax treatment should apply to both. Also, MBOs don’t suffer from the significant tax penalties that attach to EOTs upon a subsequent sale of the Company.
Capital gains tax didn’t go up in the last Budget despite speculation that it would. But the Chancellor of the Exchequer is consulting on changes to CGT and it would be sensible to assume that rises are in the pipeline. A good reason to consider a transaction in 2021.
Get in touch if you would like to explore these issues further.