Political Factors
A management buy-in requires a different approach, for the target company may well be listed on a stock exchange. When an approach is made to a target company, whether it is quoted on a stock exchange or not, the prospective vendors will want an assurance that sufficient funds are available before exploring a possible sale of their business. It is important that the management buy-in team has made contact with prospective investors before contacting a target company. In this way they will be more convincing to a prospective vendor and able to complete the deal more quickly. Additionally, some buy-in investors know of companies which would be amenable to an approach, provided that a suitable management team is available.
Using an outside adviser
There is likely to be a strong tendency to reject outside advice and help in order to minimise expense, but the management team should recognise that it is facing a number of new challenges. They must be able:
• to negotiate the purchase with their present employers on equal terms, knowing that if a deal does not take place they will wish to remain as employees
• to obtain the necessary corporation tax and financial advice to decide upon the maximum price which should be paid for the business and how to structure the deal tax effectively
• to select a suitable institutional investor from the large number available
to present themselves, and their business plan, convincingly to prospective investors
• to negotiate the best deal for themselves with the institutional investor
• to choose a firm of company commercial lawyers experienced in these deals
An outside adviser should play a leading part in tackling the above challenge successfully. The advantages he should provide include:
• making an anonymous initial approach to the parent company
• providing the valuation and corporation-tax expertise needed
• taking a tough negotiating stance when necessary with the parent company
• choosing the three of four most relevant buy-out investors, from the dozens which exist, for the management team to meet and to make their personal choice of financial partner
having enough experience to know how attractive a deal can be negotiated with the investors on behalf of the management team
• recommending a partner in a law firm with relevant exper
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