Structuring Deals

Deal Structuring

Prior to moving forward with an MBO, it is necessary to gauge the appetite and understand the motivation of both the business owner and the MBO team to commit to a deal.

Based upon an agreed valuation, it is important that the deal is structured in such a way that both the sellers and the buyers are comfortable with the deal structure.

This means that the Total Consideration paid for the business and the time period over which the payment is made are agreeable to both parties.

The owner will want to know how much money can be extracted from the balance sheet at completion. If, as in almost all deals, there is a deferred element to the Total Consideration, both the value and percentage amount of the deferred consideration, the way in which the consideration is deferred, often vendor loan notes, and the time frame over which this will take place will be subject to negotiation.

DCA Corporate works with both business owners and management teams in structuring MBOs and often acts as the intermediary in this negotiation process.

Raising Capital

The team effecting the MBO will have an equal interest in ensuring that the structure of the deal works for them. They will, invariably, require funding to complete the deal and will, if possible, not want to provide personal guarantees.

DCA Corporate works with the management team in raising the capital, utilising its longstanding connections with several financial institutions, who can provide asset based and cash flow lending.

Where there is a shortfall between the cash required to acquire the company and capital that can be raised without jeopardising the future cash flow of the business, DCA Corporate will structure an offer that will incorporate both a cash and deferred consideration element.

This will require negotiation with the sellers and their advisors regarding the deferred consideration and the time frame over which this will be repaid. Please see the previous section on Structuring Deals.

In certain circumstances, with the approval of the MBO team, DCA Corporate will introduce them to either a Management Buy In (MBI) candidate or team that can provide certain expertise and funding that the existing team is lacking.

Further sources of finance may be available from private equity partners and angel investors, who will want to take a slice of the equity.