Mike Wright Presentation at the European SME Transfer Summit

1. Why buyers of businesses need
support
Mike Wright, Imperial College Business School

2. Centre for Management Buy-out Research
• Identified emergence of UK buy-out market early 1980s
• Organised first European buy-out conference in 1981
• Centre for Management Buy-out Research (CMBOR)
• Established in 1986, based at Imperial College Business School
since 2011
• To examine developments in UK & European buy-out markets in
comprehensive and independent manner
• 25 years of research into MBO/MBIs
• Established world leading database of buy-outs
• Currently c.30,000 buy-outs in UK and Europe
• Number of publications generated from database
including:
• UK Quarterly Review and European MBO Review
• Database also used as basis for more detailed research
• Both for academic and commercial uses

3. Who are the Buyers?
MBO Management Buy-
out
Existing Management Main Non-
private equity Owners
MBI Management Buy-
in
Outside Individuals Main Non-
private equity Owners
MEBO Management
Employee Buy-out
Existing Management and
Employees Significant Owners
IBO Investor-led Buy-
out
Private Equity Firm Initiates
Transaction; Management Some
Equity
BIMBO Buy-in
Management Buy-
out
Hybrid Buy-in/Buy-out

4. Smaller PE Backed Buyouts
PE Backed Family Firm
Buyouts
Can managers buyout? They already are!!

5. What qualities are needed?
• Entrepreneurial Vision
• Managerial Capability
• Tenacity
• Commitment
• Make money
• Team
• Complete and capable
team?
• From line-managers to
owner-managers
• Firing existing colleagues and
finding new ones
• “Tacit” knowledge of
the departing founder
• How critical?
• How to fill the gaps?
• Effect on price?
• Employee relations
• Negotiating with unions
and HRM
• Business prospects
• Ability to
• Grow
• Improve efficiency
• Turnaround

6. How can awareness be raised?
• Role models of successful deals
• Accessible and informative guides
• Private Equity Demystified
• Experience of buyout managers
• Informed commentators
• Need positive image of buyouts and private equity
• Debate about private equity has been damaging and
misleading
• Courses/seminars
• Advisor, Chambers of Commerce, Industry associations,
family business associations: breakfast and evening
seminars
• Business school courses/seminars

7. Where advisors can provide support
• Corporate seller
• Negotiating with
Boss
• Is the business for
sale?
• Why does the
owner want to
sell?
• What if the bid
fails?
• Risk of being fired?
• What does seller
want?
• Family seller
• Does family want to sell and you to
buy?
• Does family think you’re up to it?
• Are there other family bidders?
• What are implications for
family?
• Does family want to maximize sale price
or keep name?
• ¼ of cases vendor proposed fixed
price maximizing valuation
• Access to information on the company?
• 2/5 vendors control information
• Role of seller post buyout? [NED?]
• Family firm buyouts don’t plan transfer
• Only 1/3 plan >1 year ahead; 1/5 don’t
plan

8. Where advisors can provide support
• PE Firm
• Potential conflicts of
interest
• Equity stakes
• Ownership illusion and
covenants
• Is a PE firm necessary?
• Which PE firm is most
appropriate?
• Can the PE firm add
value?
• Conflict of time horizon
of PE and management
• Why is the deal attractive to
a PE firm?
• What’s the strategy?
• Growth, profits from
cost-reduction….?
• Different buyers
• MBOs
• Emotion of wanting to own
‘their’ business
• Over-valuation and unrealistic
price
• Give away equity and over-
leverage
• Risk of failure of the deal
• Second mortgages and over-
commitment
• Reflecting managerial unique skills
in price?
• MBIs
• Asymmetric information
• Due diligence challenges

9. What can government do to support?
• Supportive Capital Transfer Tax regimes
• Schemes to support growth and regional
economies should include ownership
transfers not just start-ups
• MBO performance has held up better during recession
• Promote asset and private equity markets
for SMEs
• Government ownership transmission training
vouchers

10. What can government do to support?
• Supportive Capital Transfer Tax regimes
• Schemes to support growth and regional
economies should include ownership
transfers not just start-ups
• MBO performance has held up better during recession
• Promote asset and private equity markets
for SMEs
• Government ownership transmission training
vouchers