October 2012 – Source: Insight Out Magazine (Peter Terry, Partner – Manchester)
With the current market for mergers and acquisitions (M&A) tough, a vendor initiated management buy-out (VIMBO) may be an alternative for those looking to exit a business. Our 3 minute masterclass explains.
The current economic background means there are fewer transactions and those that are happening are taking much longer. And with the market a very different place now to how it was pre “credit crunch”, vendors are seeing that the levels of multiple achieved on exit have dropped considerably. While some owners are keeping a watchful eye on whether conditions improve, others close to retirement or in need of cash now are weighing up the alternatives such as vendor initiated management buy-outs (VIMBOs).
What is a VIMBO and when would it be a suitable option to take?
While it can be structured in a number of different ways to suit each particular business and needs, a vendor initiated management buy-out (VIMBO) can bridge the gap between vendors’ expectations and funding availability, and can be used to facilitate a full or partial exit of a business. In headline terms, a business owner can use a VIMBO structure to realise cash now, de-risk his investment in the business and crystalise the value of the business through either cash or loan notes to be paid by the business to the owner going forward. This way, the owner can retain an equity stake in the businesses and a share in any upside achieved on any future exit, as well as facilitate the succession of the business to a management team.
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