4 ingredients for a successful management buyout
In a world rich in liquidity, management is increasingly becoming a scarce resource in corporate finance transactions - and planning an MBO requires four ingredients that are seldom present at the same time
Funds, family offices, investors have more and more capital available, and the critical resource for kicking off an acquisition project is increasingly the presence of one or more managers with the skills to deliver a true value creation process.
This is an interesting challenge and opportunity for Italian managers, with an attractive profile in terms of remuneration. The incentive mechanisms normally provides for a growing participation in the value created in the project, with potentials for truly significant levels.
Marco Polo Advisor has recently followed several projects promoted by managers for the acquisition of a company in their area of expertise, and we have been able to see how the environment has become very favourable to support them - provided that four ingredients are simultaneously present:
- Curriculum and 360 ° experience of the managers: these projects are based on the promoters’ experience and personality, so the first element to be verified is the curriculum and track record of the managers, with a requirement to cover all the business strategic areas, and in particular the commercial, technical-operational and financial area;
- Identification of a target and a project; it is not an idea that is financed, but a solid opportunity, and therefore it becomes crucial to identify a target that can be acquired at market conditions and that represents a starting point for the project. As to dimension, although counterintuitive, it is often easier to engage in significant value and structured projects rather in those with limited financial needs; and the presence of an advisor can be very useful for contacting the target without a direct exposure of the management, to provide an already pre-negotiated “package” with an adequate information base on its feasibility.
- Clarity on how to create value: management is asked to clearly elaborate, in few points, which are the levers to be activated for the creation of value in the project. Whether they are new technologies, or new commercial opportunities, or efficiency-enhancing processes, it must be clear which actions are to be implemented to obtain an improvement in the performance of the acquired companies;
- Change of perspective from employee to entrepreneur. The most complex issue is to achieve a real change of perspective, from a management state of mind to an entrepreneurial one, to align the risks and returns expected as much as possible with those assumed by the investors. This means that the capital invested by the manager becomes a fundamental element also in its size to prove the real commitment and the ability to get involved. At the same time, since it is often a question of starting with smaller and less structured companies compared to those of origin, a sacrifice is expected in terms of fixed remuneration and related benefits, balanced by possible variable remuneration and bonuses linked to the targets set.
Marco Polo Advisor has experienced that in the presence of the four ingredients listed above, it is possible to organize a management buyout in Italy too, following to the now common practice which represents a large share of the projects for our colleagues in more financially developed countries - such as Great Britain. and France.
And this trend could develop in Italy also as a solid answer to the many cases of generational transition where profiles suited to assume the role of the new entrepreneur are not present within the family: a case where a management buyout assisted by a strong financial investors can avoid dispersing a value built over many years, and ensure a perspective to all the stakeholders involved (existing shareholders, new investors, employees, banks…).
If you are a manager who is evaluating a possible path of this type we will be happy to start a discussion so as to verify the feasibility of your project.
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