Tony Goulbourn, Chief Executive of South Yorkshire Investment Fund argues that the time is ripe for MBOs in South Yorkshire
Published: 3rd April 2002
With the UK experiencing historically low interest rates, there is a growing sense of confidence in some business sectors that now may be a good time to consider a Management Buy Out opportunity.
The key issues to be faced by a potential MBO team are whether they can manage the business better than the existing owners, freed from existing constraints and whether they can convince potential funders of that. They must also be able to convince the funders that they have a "unique selling point" and will be able to grow the business, create wealth and repay the funds they borrow.
Although the larger high profile MBOs generate most publicity, the majority of MBO opportunities are in the sub- £1 million range. This is the area where venture capitalists and other equity providers are unlikely to be interested, as they focus most of their activity on well-established businesses with proven track records and an equity need of £2m plus. This means that the majority of deals are financed on a debt basis and historically have been reliant on the security available to the bank as senior debt provider.
The bank - and any other potential provider of finance, for either the acquisition itself or for working capital, will have as their key criteria their opinion of the potential management team, their ability to run the business successfully and to generate cash - as well as the security value. Other potential funders at this end of the MBO market may include business angels, private investors with an interest in small businesses with growth prospects and wealth creation potential, and specialist financiers such as invoice discounters and asset finance lenders.
Small businesses including South Yorkshire ones have historically found difficulty in accessing finance to support smaller MBO deals because of the limitations of available security. South Yorkshire Investment Fund has recently been created to fill the gap in finance provision which has held back business growth in the past. The Fund can provide loans and equity between £15,000 and £500,000 to businesses which cannot obtain all the finance they need from traditional sources, either for organic growth or for acquisitions. Although newly established, the Fund is already working on a number of MBO opportunities jointly with management teams' advisers and potential joint lenders.
The Fund can also provide help from experienced mentors or non-executive directors - often a welcome resource for a management team buying out their business from a retiring owner and providing a valuable sounding board for the new Managing Director as he or she grows into their new role.
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About South Yorkshire Investment Fund
South Yorkshire Investment Fund provided seedcorn, loan and equity linked investments, ranging from £15k to £2.5m, specifically to help small and medium businesses meet the gaps in funding they need for growth and development.
Created as part of the Objective 1 programme, the Fund is a private and public sector business finance provider. The European Regional Development Fund and Yorkshire Forward are investors in the Fund.
South Yorkshire Investment Fund also provided access to Business Angel investments from the Yorkshire Association of Business Angels and Microloans through BiG Business Loan Fund and Donbac Microloan Fund.
Finance Yorkshire has now taken on responsibility for providing gap finance in Yorkshire and the Humber.
For further details please contact Suzanne Tinkler, on 0845 649 0000.
South Yorkshire Investment Fund Ltd is a company limited by guarantee (Registered No 3936065). South Yorkshire Investment Fund comprises three sub funds, the South Yorkshire Investment Capital Fund, the South Yorkshire Investment Development Fund, which are each managed by YFM Venture Finance Limited, and the South Yorkshire Investment Small Business Fund, which is managed by Finance South Yorkshire Ltd. YFM Venture Finance Limited (Tel 0113 294 5000) and Finance South Yorkshire Ltd (Tel 01709 386 377) are each authorised and regulated by the Financial Services Authority. South Yorkshire Investment Fund also provides a number of services, which are not regulated by The Financial Services Authority. These include the pilot Seedcorn Fund, BiG Business Loan Fund, Mentorbank and access to the Donbac Microloan Fund. BiG Business Loan Fund is managed by Donbac Ltd (company registration No. 01925556) and Key Fund Yorkshire Ltd (Tel 0114 242 8900).