The number of management buyouts in the UK is down by almost 49% compared to only two years ago, when 112 private equity-backed MBOs were completed. According to analysis of FT Mergermarket data by accounting and consultancy firm Moore Stephens, the figure is down 10% in the past year.
- Political and economic uncertainty related to Brexit
- This has resulted in nervousness from management in making risky moves
- Wariness taking on significant personal debt as part of an MBO Private equity funds are also more cautious over the multiples they pay
Some sectors, such as financial services, face the possibility of increased operational costs due to Brexit. Brexit-related knocks to confidence may have contributed to the overall number of M&A deals dropping by 22% in the last year.
Moore Stephens say that there is little evidence to suggest a lack of supply of debt funding to deploy in MBO. Rather, it sees a reining in of appetites amongst the management teams that would be holding the equity after the MBO.
MBO shortfall can damage economy
Moore Stephens says that the lack of MBOs may be damaging for the economy in the long-term as it can prevent the reinvigoration of businesses driven by a change of management control.
Through an MBO or MBI, businesses can benefit from the implementation of new ideas and overhaul of strategy that can subsequently drive growth. The transfer of ownership from one generation to the next can bolster what might have become a ‘lifestyle’ business for the previous owners.
Concern from business owners on the Entrepreneurs’ Relief tax changes which the Government has implemented has also caused some MBOs to be put on hold.
Examples of MBOs in recent years include
- The management of Timico, the internet, hosting and communications service provider, acquired the company in an MBO backed by Lyceum Capital Partners, in February 2017
- The management of Rush Hair Limited, the hair and beauty salon, acquired the company in an MBO backed by LDC (Managers) Limited in January 2017
- The management of Evans Cycles, the bicycle retailer, acquired the company in an MBO worth £100m, backed by ECI Partners in May 2015
Debbie Clarke, head of M&A at Moore Stephens says: “The pre-Brexit world creates significant uncertainty which has had a damaging impact on the number of MBOs that are completing.
“MBOs are a vital part of how the UK keeps businesses at the cutting edge of their industries on a national and international stage. They encourage the refreshment of strategy and innovative leadership at senior management level, and give companies a greater opportunity to compete more effectively and pursue growth.
More than ever, she concludes, it is vital that UK businesses remain ahead of their global rivals in order to strengthen the economy in times of uncertainty, and MBOs support this objective.