One firm in Newport has noted how they have seen a sharp increase of management-led takeovers and advised that an invoice discounting facility is an attractive option when funding the activity.Simply Factoring Brokers, based in Gold Tops, claims that of all funding options, factoring is often overlooked.
“Management buyouts can be a stressful time.” said Joe Patrick, Sales Director at Simply Factoring Brokers. “The ordeal of having to raise funds against personal assets such as property, which is often the family home, is not an attractive option; especially for spouses.”
With management buyouts on the rise, businesses are turning to alternatives sources of finance to fund acquisitions and takeovers.
“When assessing funding options, it is important to note that the invoice finance route is only available to limited companies and the funding is capped at the turnover of the business. Therefore, an invoice discounting facility has to be used to part-fund a deal, but still releases much needed capital in the debtor book to help sustain the business through the transition period of a buyout.”
Mr Patrick stressed that an MBO is a long process, and usually involves a protracted discourse between buyer and seller.
“MBO’s tend to be quite a drawn out period. The owner of the business may discuss the idea many years before anything happens to their management team to asses if there is an appetite for a buyout. Also, many business owners who trust their management and staff to run the business will prefer this over a trade buyer as they wish for their legacy to be upheld. Another common factor is that the owner wants the business to continue its success and who better to execute that than the people who are effectively running the day-to-day business operation than the management.”
Mr Patrick highlighted these factors as reasons why using an invoice discounting facility is an attractive option when a management team take over a business: “The management team will be aware of the existing debtors and will be familiar with the monthly sales function of the business, so they will be well placed to use a invoice discounting facility to either part-fund the buyout or fund the business’ costs during consolidation.”