Are you a Leveraged Buy-Out (LBO) buyer?

Category: Helpful tips for SME's | Preparing to sell a business

Wed 9th October 2019

Over the last year we have received an increasing number of enquiries from individual investors and investment groups, who are looking for leveraged buy-out (LBO) deals.

Such deals can work in cases where there are significant balance sheet assets and a business owner/director who is open to taking the risk on the deferred element of the deal in return for a higher overall deal value.

On the flip side, the vendor will always feel that you are trying to buy the company with their own money!

In presenting prospective buyers to our clients, we must be able to demonstrate the validity of your offer, in terms of both your management and businesses development profile and your ability to raise funds.

Remember, our business owners are not in a position where they have to sell. The following rules therefore apply:

  • Buyers must be able to demonstrate and articulate what they will bring to the business.
  • Buyers must be prepared to put a significant portion of cash in the upfront payment, in order to demonstrate commitment.
  • The vendors will need to buy-into you, the buyer, as much as you are buying into the seller’s company.

As brokers, we have to be sure that buyers really do have access to equity funds and the ability to raise finance, before committing our clients’ time to meetings and providing answers to each buyer’s individual questions.

Because the vendors will be dependent on the ongoing success of the company and possibly working alongside the buyers for some time post deal, our clients will also wish to understand what resources and capability each buyer will bring to the business to ensure its continued growth and payment of any deferred consideration.

We therefore request buyers to provide the items list below before arranging meetings or conference calls with the vendors, or providing further information which is not included in the Information Memorandum, 3 years of accounts and year-to-date management accounts.

  1. Description of the methodology you will use to value the company and determine the deal structure.
  2. Description of the type of finance you will look to raise on the assets of the company, and the extent to which you propose use invoice financing.
  3. A letter from a UK accountancy firm, or UK law firm, stating that they have carried out identity and Anti-Money Laundering checks, and that you have sufficient funds to proceed with an acquisition of this scale.
  4. A CV detailing your career to date.
  5. A list of other companies you have acquired in the last 5 years, and others in your portfolio. We and our clients will treat this information in strictest confidence and would be happy to sign an NDA to this effect.
  6. Your typical management approach for the companies you acquire, who from your company will be in the business day to day

As business brokers we achieve good outcomes for our vendor clients by giving them good advice from the outset. We provide ambitious but realistic valuations, to make sure expectations are aligned with the market before we take on the sale mandate.

We also make sure we present our clients with prospective buyers who are well qualified, in terms of funding, sector experience and management ability.

We hope you understand our approach and look forward to progressing discussions with you.

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