The Undercover MBO

Last year we led the VIMBO of a successful business. VIMBOs often take place under the radar and this case was an excellent example, where the Company was able to complete the change of ownership with minimal “noise”. This allowed there to be little disruption internally and externally and those dealing with the business should have seen no real change.

The business has been growing and now generates underlying EBITDA of c£1.5m per year. The existing shareholders weren’t ready to exit the business entirely but had a clear vision of a gradual and planned withdrawal ahead of their intended full exit in 5 years. There was a tier of directors & senior managers with strong track records but also an awareness that they weren’t ready to be effective owners and controllers of the business in the short term.

The VIMBO allowed a management owned Newco to acquire the business and therefore complete the transfer of ownership. The previous owners retained a small stake in Newco, demonstrating their commitment to the future of the business and their belief in the ability of the future management team. A strong balance sheet meant that a sizeable element of the consideration was paid on Day 1, without the need for any external finance. The vendors have the remainder of their consideration to be paid steadily over 7 years, creating significant tax benefits when compared to extracting cash via salary or dividends.

For management, the VIMBO allowed them to acquire the business with very little new cash investment. A previous EMI option scheme meant that most of the incoming team had sale proceeds to roll over into Newco, and in fact were net cash beneficiaries on day 1.

The board was supplemented by the appointment of a number of the new shareholders as they stepped up from their previous roles. The principals remained in senior roles, although responsibility was more widely shared. A major element of the project was the management transition plan governing the development of the new ownership group, their mentoring and gradual growth into full leadership of the business.

In summary, the vendors were able to achieve a highly tax efficient exit, allowing them to realise a premium value for their shareholdings over the VIMBO period. They have a clear plan for their operational exit at a pace which suits both them and the needs of the incoming team. A core of talented senior employees now own the business and have an agreed programme of development as they take increasing management responsibility. Finally, a successful business has moved on to the next phase of its evolution, with new ideas and energy and an exciting plan for its ongoing growth. Best of all, this has taken place with very little disruption to the business itself.

Neil Grimmond
About the author

Neil joined Craig Corporate in 2005 and has been involved with both corporate finance and business management assignments. Corporate finance projects have ranged from diligence to...
read more


by Neil Grimmond