Case Study:

Martin and Joanne Fellows started a specification business some 20 years ago. Over the years, through first class client care and a “can do” attitude the company flourished. The business was primarily offering services to intermediaries who initially obtained the customer. The specification business is highly technical and recruiting the right people was paramount whilst retaining them was crucial. Salesmen were recruited usually from the industry, but the company also had an impressive record of growing their own.

Legacy, Tax

Martin was approaching 64 and Joanne 63. Their son, John, who was 32 worked in the business and was growing into a competent MD. The age-old problem of getting into business being relatively straightforward, however, escaping the business at the right time, for the right money, to the right people much more problematic.

At a financial planning review meeting Martin agreed this was a good time to consider selling the business, but did not want to relinquish totally his shareholding and also had an eye on his son and his future. In addition, Martin felt the business had a great deal of potential to grow further.

After some discussion, we introduced Martin and Joanne to a highly regarded corporate finance professional. After debating all of the options, everyone agreed that a Management Buyout (MBO) was probably the best way to move forward, feeling this had several advantages over an outright sale;

  • Due diligence was controllable.
  • All key staff could become shareholders in the new company.
  • Martin could stay on as Chairman and retain a small shareholding, so benefitting from future growth.
  • Martin’s son could develop and grow fulling into the role of MD.
  • Capital from the sale of his shares would be released to Martin as an initial capital sum with stage payments for the balance, all at favourable tax rates.
  • Funding for the MBO could be obtained through bank borrowing at favourable rates, because of the strength of the business.
  • Martin would spend less time working in the business so he and Joanne could begin to do some of the personal things on their “bucket list”.
  • The Result

    • Martin, his son and two senior salesmen became shareholders in the new company.
    • Martin retained a 28% shareholding.
    • Martin received a capital sum and was paid out over a three-year period on the balance.
    • The company moved into purpose built, state-of-the-art premises partly funded by capital released from the sale.
    • The new executive team have taken the business to new heights.
    • Martin is enjoying his role as Chairman and has overseen the development of his son as MD.
    • Three years on, the growth at the executive thought was available has materialised and the company is now going to market for potential sale where all shareholders will receive substantial capital for their holdings.
    • Their MBO has been a desirable halfway house, enabling all parties to grow and benefit from their contribution to the business, whilst allowing Martin to step back but still be involved.

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    • Chartered Institute For Securities & Investment
    • Financial Planners Chartered