Management Buy-Outs

Introduction

• Where did buyouts originate? This MBO course begins with an historical overview
• Understand the difference between venture capital and private equity
• Key features of a buyout target
• Ups and downs for PE since 2020
• Pressing issues facing the industry

What do we mean by Management Buyouts?

• PE funds, their growth and their objectives
• Buyout financing – is it just an M&A deal with more participants?
• Breaking a typical deal structure down
• Assessing the feasibility of a buyout – key considerations
• Kick-off meeting: how to start putting a deal together
• What does a PE deal really need?

The Parties Involved in a Buyout: Respective Roles and Interests

• Management teams
• Seller(s)
• Private equity houses
• Banks and other debt providers
• Identify potential areas where interests may conflict and how to manage them in this MBO course

Practicalities

• Ten key questions to ask
• What really matters?
• Legal documents – the requirement over and above that for a basic M&A deal

Buyout Economics: What Makes a Buyout Work Well

• Three key drivers of value and success
• A simple management buyout model you can take and adapt
• Flexed inputs to demonstrate the sensitivity of the key measures of return
• Understand the significance of cash generation
• Private equity buyout and the long term: Exit planning/ exit review
• Current challenges around exits
• How many buyouts fail?

PE – Industry overview

• How do we differentiate between equity houses?
• By sector
• By size
• By strategy
• How does PE make its money? The answer may surprise you
• Current controversies dogging the industry worldwide are covered in MBO courses

The Position of Management: the most important people

• Their economic position in the deal
• Incentive forms: sweet equity and ratchets
• Management rights during the buyout
• Relationship with the PE house: Governance and shareholder agreement overview
• Secondary buyouts with management rollover

Why and How Debt Matters

• The principle of using other people’s money
• How leverage exaggerates equity returns
• Sensitising the use of debt; interaction with how much a PE house can pay
• Capital structure: the cost of capital concept, as applied to buyouts
• Interest deductibility and tax shelter
• The limitations to leverage: company debt capacity, debt market limitations, and tax deductibility
• The value of having competing debt providers
• Refinancing a deal mid-buyout: what this achieves (and for whom) concludes this section of Redcliffe's MBO course

The importance of Growth

• The single most important underpinning of successful buyouts
• Sensitising the impact of growth above/ below plan
• Timing – why where you are in the business/ financing cycle matters

What if Things Go Wrong?

• Living with PE is great until …
• Development of economic interests – the model revisited
• Typical intervention rights for each party
• How – exactly – things can get messy …
• … and what outcomes may ensue

Management Buyout Case Study

• Review the business buyout plan
• Dealing with PE houses – key selling messages
• Choosing between three alternative bids for the same company
• The resulting deal structure
• Comparing economic outcomes if the business plan is achieved
• What has happened since?

Financial Sensitivity

• Using a workbook (provided) to help appreciate the impact of variation from plan (upside and downside)
• Cash generation, growth, and the use of debt

Course Conclusion & Overview

Delivering MBO courses is an expert who has worked on corporate finance and capital markets transactions for over thirty years, holding client-side positions and leading advisory teams.

At the Department of Energy, he was a civil servant involved in the privatisation of British Gas, a global IPO involving a large advisory team. He spent two years (1990-92) with the Hungarian Government privatisation agency, working with many advisory firms, as the changing political environment triggered massive ownership change. This expert has worked for major investment banks (Swiss Bank Corporation International – now UBS, and Lazard) and co-founded a successful M&A advisory boutique.

In 2021, having spent 13 years in the firm’s global M&A business based in Scotland, our management buyout specialist retired from KPMG.

His experience combines a broad range of M&A and equity transactions in North and Central America, Asia Pacific, major European countries, and, most recently, Africa. His training draws deeply on management buyout case studies from transactions he has run, bringing practical examples to set alongside theory.

• Redcliffe’s MBO course provides an introduction to the concept of buyout transactions
• Training considers what drives buyout economics – increases understanding of the sources of funds (debt & private equity) and the key value drivers
• Participants explore the motives and objectives of private equity investors and their typical target returns
• Debt matters: demonstrate how debt enhances returns - appreciate the fundamental role of bank debt and the potential of other forms of buyout debt
• We consider why management buyouts are more complicated: an overview of the extra layers involved (relative to a trade sale) in putting buyouts together
• A crowded house: understand the roles of the various parties, and how to deal with each – focus on potential conflicts of interest
• Management’s role: understand the specific issues relating to the management team and what advice managers will need
• Partnering: choosing the right equity house(s) to approach
• This MBO course covers the worst-case scenario: how MBOs may go wrong and what may ensue

At Redcliffe Training, our MBO courses are for anyone seeking a better understanding of what the process involves.

Training is a ‘must know’ for those expecting to be professionals involved in the buyout of a business, including:

• Business owners considering a sale, especially where a transaction involving the management team is under consideration
• Managers seeking a better understanding of what a sale involves and the specific complexities attached
• Business managers considering an MBO of where they work
• Family business advisers
• Investment Bank M&A professionals, boutique advisory businesses, and the corporate finance arms of accountancy firms
• Corporate business development teams, eg, in large, diverse PLCs, where disposals business pieces may be on the agenda, with an MBO an option
• Private equity professionals, particularly those new to the industry and previously trained as accountants, consultants or lawyers, will benefit from training and our management buyout case study

This course is a ‘nice to know’ for:

• Legal and other advisers involved in the M&A process seeking a better understanding of the specific intricacies of a buy/ sell via an MBO.
• Training is particularly helpful for those with some basic exposure to management buyouts and private equity concepts, and who wish to accelerate their understanding of what underpins successful deals.

Buyouts are such an important part of the M&A landscape. So important that in recent years they have made up to 50% of all transactions.

MBO courses at Redcliffe begin by helping participants understand why buyouts have become popular. Our focus is on the main industry professionals driving activity – the private equity houses. Whilst these may appear to have much in common, we take time to understand how to differentiate between houses and choose the ‘right’ buyout partner.

Training walks through what makes a buyout successful in economic terms, taking time to understand the importance of growth, debt and timing. Going beyond economics, sessions explore the relationship between management teams and equity houses, the key to success, but also a relationship which can become tough when deals falter.

This programme includes a management buyout case study, additional case studies, financial explanations, and an introduction to the financial modelling used by buyout participants to make investment decisions. Participants receive a comprehensive overview of how to begin the management buyout process and plan a successful transaction.