MBO and Acquisition Finance

What is MBO, MBI & Acquisition Finance?

Management Buyouts (MBOs), Management Buy-Ins (MBIs), and acquisition finance are funding solutions designed to support businesses through ownership transitions. These transactions are typically structured with a combination of financing sources to ensure the deal is successful and the business is poised for long-term stability and growth during the transition. When using debt funding for these types of transactions, lenders typically require the borrower to have some financial commitment, often referred to as having "skin in the game." The required contribution varies depending on the deal size, structure, and lender policies.

Types of Transactions:

• MBO (Management Buyout): In an MBO, a company's existing management team buys out the current owners, believing they can manage and grow the business more effectively.
• MBI (Management Buy-In): In an MBI, an external management team acquires the business, bringing in new leadership, strategic direction, and often fresh growth initiatives.
• Acquisition Finance: This refers to financing for a company to acquire another business. This can be structured with a blend of debt financing, asset finance, invoice finance, and/or private equity to balance risk and ensure a successful acquisition.

How Does the Application and Repayment Process Work?

Application Process:

1. Assessment of the acquisition: Lenders will evaluate the financial health, performance, and future prospects of both the acquiring and target businesses. This can be include some back and forth between lender and applicant, and require detailed information (see below).
2. Structuring the funding package: The deal may require a combination of funding solutions, including term loans, asset finance, or invoice finance.
   
   

Repayment Terms:

• Term loans are typically repaid over 3-6 years with fixed monthly repayments.
• Invoice finance offers flexibility, enabling you to release capital from unpaid invoices and use it for working capital.
• Deferred consideration is common in MBOs and acquisitions. This means part of the purchase price is paid over time, ensuring the vendor remains engaged in the transition and the buyer has sufficient time to stabilize the business.

When is MBO, MBI & Acquisition Finance Suitable?

These financing options are ideal for:

✔ Management teams wanting to take ownership of the business they operate.

✔ Entrepreneurs or business owners looking to acquire an established company with strong growth potential.

✔ Companies looking to expand through strategic acquisitions.

✔ When the buyer cannot fund the purchase fully upfront but can meet repayments using the business's future revenues.

What is Required for an Application?

Lenders typically require the following documentation to assess the viability of an acquisition:

• Financial Statements for both the acquiring and target businesses, including 2 years accounts, management accounts, 6 months bank statements and aged debtor and credit reports.
• Business Plan: A detailed business plan outlining the acquisition strategy, expected growth, funding sources, and repayment plan.
• Cash Flow Forecasts: Projections to demonstrate the acquiring company's ability to meet repayment obligations.
• Asset Information: Details on available assets othat can be used to secure the funding.
• Management Team: Information about the management team's experience and their ability to lead the business post-acquisition.
• Personal Guarantees: An understanding of the value and availability of personal guarantees.
• Business Valuation: Insight into how the business has been valued to ensure an accurate understanding of the transaction.