The importance of engaging quality advisors cannot be emphasized enough – it is in the best interests of all those involved in the deal: the funder, the bank and the legal team.

This means not opting for an advisor purely on the cheapest price – it’s vital to have someone who can apply a sensible, pragmatic approach, who liaises on an ongoing basis with the banks and has gained their trust. Just as crucially, they must understand the requirements of the funders, as well as the MBO team.

Whilst there is still downward pressure on prices, there are clear signs that the deals market is making a slow recovery. It is important that a realistic value is placed on a business for the transaction to succeed. 

Funders want to be assured that a company’s advisor understands the level of cautiousness that the banks are now applying to debt multiples compared to two years ago when they where much higher. This pressure impacts on the funding packages that can be put together and, in turn, effects the prices that can be achieved. 

With any MBO there are three prices being sought by the parties involved: the price the MBO team want to pay to buy the business, the price the vendor wants for selling the business and, most importantly, the price that can be funded. Unless all three of these overlap there will be no deal!

We are now at the bottom – or thereabouts - of the economic cycle and therefore now is, in my opinion, a good time to buy. Wait, hoping that prices will fall further, and the likelihood is you will miscalculate and miss out on some excellent acquisitions and MBO opportunities in the process. There is, in the current economic climate, still pressure on large corporates to generate cash and divest themselves of non-core businesses. Whilst immediate cash pressure may have eased, they are still likely to consider an MBO proposal, or even initiate one. 

A management team can, in some respects, choose the best possible timing when approaching a parent company with regard to a possible MBO. Clearly, if a subsidiary has not been generating cash for some time, the owners may be unhappy with its performance and probably receptive to an approach. However, there may be a scenario where the management team - being closer to the day-to-day running of the business – know that the cash outflow has, or is close to, being halted and the business will soon be on the up. Similarly, the subsidiary may be trading well whilst the parent isn’t. These are good times to consider an MBO.

For any team considering an MBO in the future it is vital to plan ahead and be in a position to provide visibility of earnings and to ensure all housekeeping duties are in hand, such as tidying up legal issues and sorting out administration systems. From a funder’s point of view, the speed of response to any questions will provide an insight into the quality and efficiency of systems in place. 

Some banks are now taking the view that we are coming out of recession and are prepared to back businesses that are demonstrating growth potential. Those companies generating strong earnings and an excellent track record are going to be particularly attractive to investors.

Catapult has continued to invest throughout the economic cycle. In recent months, we have seen a clear improvement in the quality of businesses that are approaching us compared to a year ago when a lot of MBO’s were rescues in disguise.

 Whilst the buyout market is arguably at a low ebb particularly at the smaller end, the larger market is enjoying an upturn, albeit not a meteoric one. As a result, a significant level of hard work is being put in by advisors to complete a deal.

There is no doubt that in a tough market, the quality of the advisor can be the difference between a transaction completing or not. From my perspective a good advisor is an honest one, who is prepared to relay the kind of messages that you might not want to hear. However, fair constructive criticism can be invaluable and, in an MBO situation, it is important that any unresolved issues are ‘flagged’ and dealt with by the management team in order to ensure better terms as a result.

Whilst there remains uncertainty in the shadow of the problems that have beset the European economy and there are fears over the level of debt that the UK economy is exposed to, the business climate is slowly but surely improving. Whilst there may be setbacks, there is a real opportunity to acquire good quality businesses at a good price.

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