MBO - best way to table an unexpected offer
Discussion
Very first stage plan being formulated, just wondered if anyone has been through an MBO (either side)?
Our intention is to clear Q1 2015 and then slap a proposal on the desk of 2 directors and retire to a safe distance and enjoy fireworks.
Background to the business; 21 years old, niche tech company with fantastic employees but 1 director lazy and often absent when required in a financial control role and other approaching retirement age and also part time already whilst not having any need to attend (no function that a part time, living wage employee couldn't carry out). They built the business from nothing and are fiercely protective (the amount of times I cringe hearing the "how is our baby" comment when they've been absent for days...) whilst happy to call on a Monday and notifying us that they are on the way to the airport for a 3 week break.
Proposal consists of 50% share purchase, reducing their shares to 25% each, then a buy back of 5% of each of their shares per year for 5 years, thus keeping them incentivised in the business. This hopefully avoids them starting a new venture and competing as the 5 year buy back will be from profits generated, but keep them hands off to eradicate their failings as business owners that have hamstrung the business to the point of being unable to grow past the current state.
For the interested, numbers would be £750k initially and then £150k (£75k each) years 2-6.
Thanks in advance for replies.
Our intention is to clear Q1 2015 and then slap a proposal on the desk of 2 directors and retire to a safe distance and enjoy fireworks.
Background to the business; 21 years old, niche tech company with fantastic employees but 1 director lazy and often absent when required in a financial control role and other approaching retirement age and also part time already whilst not having any need to attend (no function that a part time, living wage employee couldn't carry out). They built the business from nothing and are fiercely protective (the amount of times I cringe hearing the "how is our baby" comment when they've been absent for days...) whilst happy to call on a Monday and notifying us that they are on the way to the airport for a 3 week break.
Proposal consists of 50% share purchase, reducing their shares to 25% each, then a buy back of 5% of each of their shares per year for 5 years, thus keeping them incentivised in the business. This hopefully avoids them starting a new venture and competing as the 5 year buy back will be from profits generated, but keep them hands off to eradicate their failings as business owners that have hamstrung the business to the point of being unable to grow past the current state.
For the interested, numbers would be £750k initially and then £150k (£75k each) years 2-6.
Thanks in advance for replies.
Existing customer base is huge, brand is very well established. The reason to buy is to remove the two barriers to growth - the current business owners.
Starting from scratch has been considered and scrapped as an idea, if for no reason other than we wouldn't deal with a supplier / service provider that quit their employer then approached us having only known about us because of their previous role. Morals shouldn't have a place in business decisions I know!
Starting from scratch has been considered and scrapped as an idea, if for no reason other than we wouldn't deal with a supplier / service provider that quit their employer then approached us having only known about us because of their previous role. Morals shouldn't have a place in business decisions I know!
All comments taken on board.
On the laziness issue - it's even admitted by the guilty party, he's reasoning being that half his salary is his time. The problem comes about when he's the sole person responsible for signing cheques to pay suppliers, leading to diminished relationships and delays to clients.
The softly softly chat was had a year ago, after they rejected a buyout offer from a competitor. The numbers and plan are based around their comments at the time.
The payment from profit generated in years 2-6 would be on top of their drawings as directors. There is finance in place to pay the lot in one go, but potentially eradicates working capital from the point of agreement (they would intend to be repaid their directors loans which form a considerable sum of cash in bank for the business).
On the laziness issue - it's even admitted by the guilty party, he's reasoning being that half his salary is his time. The problem comes about when he's the sole person responsible for signing cheques to pay suppliers, leading to diminished relationships and delays to clients.
The softly softly chat was had a year ago, after they rejected a buyout offer from a competitor. The numbers and plan are based around their comments at the time.
The payment from profit generated in years 2-6 would be on top of their drawings as directors. There is finance in place to pay the lot in one go, but potentially eradicates working capital from the point of agreement (they would intend to be repaid their directors loans which form a considerable sum of cash in bank for the business).
Advice in various forms taken on board and thank you for the posts. Meeting planned to discuss next steps tomorrow evening and see if we can't look at the amicable but in one go move.
Intention is to first discuss the funding of total buyout (circa £1.5M) and then what to offer as a dividend incentive over a few years.
The ultimate issue shared by myself and others senior in the business is that, without this move, the business is maxed out and we can see so much room for growth by cost cutting and development of other areas linked to the core business activity.
If people are interested, will post on progress.
Intention is to first discuss the funding of total buyout (circa £1.5M) and then what to offer as a dividend incentive over a few years.
The ultimate issue shared by myself and others senior in the business is that, without this move, the business is maxed out and we can see so much room for growth by cost cutting and development of other areas linked to the core business activity.
If people are interested, will post on progress.
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