Having recently successfully negotiated and completed a complex management buyout (MBO) for leading regional estate agency, Dowen Estate Agents, Sweeney Miller Law corporate and commercial property partners Surbhi Vedhara and Jess Fenwick explain more about MBOs and how they can be an often-overlooked option for growing businesses.
What is an MBO?
This is where one or several employed members of a business’ management team decide to pool their resources and borrowing ability to buy all or part of the company. Given their experience and understanding of the business they will then generally seamlessly take over the running of the company. An MBO is usually reassuring to staff and customers as in most cases things will continue “business as usual”. One potential hurdle of an MBO is that often those looking to buy the existing owner’s interests will need external funding and investment, in turn those providing the loan or investment will need to carry out extensive due diligence to satisfy themselves that the incoming owners have the experience, “know how” and support from the rest of the staff to drive the business forward following the MBO.
The MBO Process
Usually following unilateral valuations, the business owner/s and MBO team will agree a sale price. The MBO team, if they haven’t already, will investigate funding options, including the amount they can invest. This will include extensive enquiries by any lenders and/or investors, financial analysis and forecasting. Ownership of business premises, stock and equipment may also have to be negotiated and transferred. Depending on staffing numbers and roles, there will also need to be detailed consideration of employment issues. This will all need to be negotiated, with each side of the deal requiring its own legal representation leading to a range of written agreements and the completion of the MBO.
Dowen Estate Agents MBO
Founded by managing director Denis Dowen in 1982, the Hartlepool based estate agency has eight branches across the North East, together with three dedicated auction stores. As a longstanding client and referrer, Denis Dowen approached Sweeney Miller Law to deal with the planned MBO as part of his longer-term retirement plans.
Having supported two senior members of his management team, John Nicholson and Trudie Bowes, whilst running the business over many years, the time had come for a full transfer of the agency’s corporate ownership. Negotiations then ensued and despite the significant impact of COVID-19 and subsequent lockdown, they continued, concluding in completion of the MBO, fittingly by way of remote technology.
Given the number of branches and different strands associated with the business, the deal was complex involving several layers of technical negotiation. However, ultimately as a share sale, the business structure remained unchanged, providing a robust foundation for Dowen’s new owners and staff in the future. Denis Dowen continues to be involved with the business on a consultancy basis with John and Trudie now joint Managing Directors.
Commenting on the deal, Denis said: “Thanks to Surbhi and Jess for the professional manner in which they handled the sale of my business. From our initial meeting to completion the process, although arduous, was handled in a beyond reproach manner. Communications were always prompt and concise, I was updated on a regular basis whilst our scheduled completion date was met, on time, despite the ongoing Covid-19 pandemic.”
Reflecting on the challenges of progressing the buyout during the coronavirus pandemic, Surbhi said: “Despite the practical difficulties caused by the impact of COVID-19, with technology, energy, determination and an experienced technical team, we were able to get what was a complex deal over the line. We are very much focused on maintaining business continuity for the benefit of our clients and playing our part in keeping the wheels of business in the region moving as best we can.”
Sweeney Miller Law provides specialist commercial legal services to the smaller to mid-range business sector, filling a vital gap by providing affordable, quality and pragmatic legal services to busy business owners. Given the current economic uncertainties, MBOs may well be an oftenoverlooked opportunity for businesses looking to grow.
To find out more, get in touch with Surbhi or Jess at www.sweeneymiller.co.uk or call 0345 900 5401.
