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Financieel Management

Consideration must be given at an early stage to whether all the necessary ingredients for success are present.

No management team should ever pursue a buyout unless there is a good chance of success. When an MBO is not achieved, for any reason, it may well fundamentally alter the relationship with the group or shareholders. Management will also need to consider their own aspirations because a buyout process is not for those who lack motivation. The role of the financial adviser in assessing the feasibility is a crucial one; the adviser will be able to ask the right questions.

Next to the four ingredients for success the likelihood of potential competition must be considered. Will there be competitive bidders for the business? What might they be prepared to pay? Does the company have any special value to potential trade buyers? What will be their plans for the business after they have acquired it? What particular advantages do the management team have compared with other buyers? What arguments will the vendor be susceptible to and what are the vendor’s preferences?

Although the financial structure will evolve throughout the process it is important to consider at an early stage a rough outline of the possible and appropriate structure to see what price could be supported. Specifically, attention will be devoted to the amount to be invested by the management team.

If the vendor’s price expectations are known they can be compared with the (maximum) price that could be supported by Newco.

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