Grant Thornton sees buy-outs coming back in favour

Mar 31 2009 by Tom Scotney, Birmingham Post

Management buy-outs will prove a primary driver for deal making in the Midlands, according to the new regional head of corporate finance at leading mid-corporate adviser Grant Thornton.

Phil Jackson, who recently took the helm of the multi-disciplinary and award-winning team, said that as deal volumes increase, management buy-outs (MBOs) are set to become more popular.

“As the market boomed in recent years, MBOs somewhat fell out of favour,” he said. “In a seller’s market, a trade sale generally attracts a higher price. We now have a situation where corporate groups are identifying non-core divisions and considering other disposals to reduce bank debt.

"A sale to management can achieve the desired result as there is room for more flexibility in the structure of an MBO and the deal can be achieved without the glare of publicity that can often surround a trade sale.”

The management team at stricken van-maker LDV is desperately trying to arrange a MBO of the firm which they say is the only way to save it.

And Mr Jackson cited the example of the recent MBO of Virgin Vie at Home from Virgin Group, on which Grant Thornton advised the management team, as an example of an MBO success story.

He said: “This was a classic example of a parent group wishing to concentrate on its core areas of activity. It selected the Virgin Vie at Home management team led by Ros Simmons and Ratan Daryani as the preferred bidder The management believes the current retail environment will provide significant opportunities for its ‘direct to consumer’ business model and is looking to expand internationally.

“Undoubtedly, as economic conditions are presenting challenges for every business, large and small, we will see groups consolidating their positions and divesting subsidiaries, particularly overseas groups which need to repatriate their people and retreat to base. These scenarios will provide opportunities for strong management teams to seize their chances.”

Mr Jackson said private equity was becoming increasingly popular as a way to fund MBO opportunities. Although bank funding is tight, financial backing is still available for businesses with robust and achievable plans, he said.

He added: “The major current issue for financiers is the uncertainty of trading. Many businesses are finding it a challenge to predict one month ahead let alone three to five years, which is often the period financiers want to consider.”