Whilst the COVID-19 crisis may have provided opportunity for reflection and the realisation that now might be the perfect time personally for you as a business owner to sell your concern, inevitably you’re probably wondering if it’s even possible or practical to begin the process, with questions including:
How do I find a buyer for my business in the current business climate?
Who would risk borrowing to acquire a business in these uncertain times?
How do you get value and protect everything you have built during the sale process?
How do you avoid the bargain hunters?
There is no doubt about it, at the moment the retiring business owner may well find it difficult to find a buyer for their business, let alone one that will pay full value in the current climate. Indeed, many business owners may not even consider it possible to sell their business right now or for the foreseeable future. However, there is still a way to sell your business, generate the value you require, safely and securely ensuring both its future and that of the management team via a Vendor Initiated Management Buy Out (VIMBO).
A VIMBO is very similar to any other Management Buy Out (“MBO”) but with one important difference, the vendor is the one who initiates the process and makes the approach to management.
Key advantages of a VIMBO include:
The vendor is selling to an individual or group who know and understand the business, and will see its potential, notwithstanding the current climate
The business owner has a greater degree of control over the process; for example, price, timing or retaining a stake
With a VIMBO, the vendor usually has visibility of the management team’s thought processes, concerns and attempts to raise funds
The vendor retains valuable influence and certainty over the completion of the transaction
A VIMBO offers a flexible approach that can be tailored to each specific case e.g. if the management team are not in a position to personally fund a material level of the consideration there are often a number of options to work around this; a self-funded model, for example, is used regularly in VIMBOs so the new management team are not beholden to banks or private equity houses, therefore, the commercial risks of openly marketing your business are mitigated as the deal effectively takes place behind closed doors.
A VIMBO provides an added incentive to the management team and eliminates the uncertainty of a sale to a third party. Those in the business will understand it and appreciate its value and thus can be a more straightforward sale than to a third party.
A sale provides the vendor with proceeds in a tax efficient manner, taking advantage of current incentives. However, the danger of approaching a management team without guidance and support may lead to them being unsettled and concerned.
As any business sale can be a complex transaction which can be daunting, a VIMBO in particular needs to be positioned in a straightforward manner. It is essential therefore that the vendor fully explores the option and takes professional advice before making an approach to management. VIMBOs present a straight forward, highly flexible option for vendors to secure an exit in a very tax efficient manner, whilst offering a fantastic opportunity to the management team, and although they do require careful planning and goodwill on both sides, they are incredibly effective when executed professionally even in the current climate.
For more information or to learn more about how a VIMBO could work for you, your business and your management team get in touch with Richard Gibson on 0771 288 0164.
