There's No Room for Blind Fish in your Management Buy Out Team

Blind Cave Fish, which have evolved in totally dark underwater caves are, as the name suggests, totally blind. A similar thing happens in a company.  Many times there are Senior Executives who have been with the company a while and they know nothing other than the environment they are in. Like the blind fish, they are well fed, successful and function perfectly.  Take those fish out of the cave and they are in trouble and will soon loose their way.  Executives can be the same.

Very often C level executives earn their right at the board table by time served and being really very good at.....politics.  They have been in the right place at the right time.  Said the right things.  Often they are in the background, never violently disagreeing or agreeing, staying on the fence.  Quite often they are likeable and sociable.

In a Management Buy Out, however, there is no space for Blind Fish on the board.   The trouble is it is really hard to spot colleagues and frame them in a different situation than the one you have always been in.

A great Management Buy Out is one with a leader and a well balanced team - a mix between operations, sales, marketing and finance.  However, if you are the leader of the team you should take a long hard look at what your colleagues actually contribute to the success of the organisation.  Also, in order to make the a success of an MBO there will need to be extra effort, more work, sacrifices,cost cutting, renewed investment etc.

So, if you are considering a buy out it is best to set some tasks to your colleagues and see if they are able to get out of the dark cave on their own.

One test, for example, is to ask the sales director how he could grow the business by an extra 10% over the budget.  If the sales director is a Corporate Blind Fish he may say words like, "if I could do that I would have put it in the budget," or, "you know that's not possible, I don't have the support, ops can't do it." If you push him or her watch even more carefully.  See if he goes to someone else, a key member of his team, to do the work.  Look at his team.  Are there any managers there that would do the job better than him at a cheaper cost?   Remember, Corporate Blind Fish are often the easiest people to get on with, the ones who are good socially, but you'll need to put that aside for the sake of the successful Management Buy Out.

When a colleague and I were setting up a finance company with £115m investment we spent months on the business plan, putting together a team, winning over corporate finance advisors, lawyers etc. During this we put our team together and my greatest surprise what that we didn't bring over our peers from the the company we left, we had to look at lower grades, to the real workers, those with more hunger, a greater passions, more ambition, more practical skills.  Whilst an MBO has an established structure, it is not necessarily the one you have to go forward with.  The best advice is to advance with the team you want who can take it forward...... with one note of caution....

In a successful Management Buy Out you may have to be prepared to build a tank and create perfect conditions for some Corporate Blind Fish.  You may need certain people to help you gain the agreement of the current owners and you may have to take some star fish (ugh) to wow the future investors.  I could tell you a very good story about that!

Are You Management Chimp or Orang-Utan?

Few people take the time to think about what kind of managers they are and this becomes very important when considering a Management Buy Out - are you a Chimp or an Orang-utan? What sort of behaviour do you and your top team need to succeed?

Let me explain.  I worked in one of the world's largest Zoos for a long enough time to notice some of the real differences between Chimpanzees and Orang-utans.   Chimps are the most social of all the apes.  They live in communities and exhibit lots of behaviours such as grooming each other and even comfort each other. Orang-utans, on the other hand, are solitary creatures living in the trees and any loyalty displayed is between the mother and offspring.

When considering a Management Buy Out the Private Equity investor will seek a team.  Rarely do they rely on one individual.  They want to spread their risk over a number of key individuals.  Whilst this is the case, it is important that the team is rock solid.  They should analyse their own skills and seek to fill gaps from outside or in co-operation with their investor using a specialist recruitment agency like Equity Quest..

A set of skills and mix of people are not enough.  The MBO team must form a tight bond.  OK, there must be a leader and he or she may be able to climb higher and out perform the others, but if that leader turns into an Orang-utan he will soon find the strength of the team dissipates and be left high and dry.

The Management Buy Out team, even if that team consists of a mix of skills and abilities, (which may be reflected in the shareholding) will always stand the test of time if it is solid, loyal and the members get along socially.  I prefer Orang-utans - they are gentle, intelligent and kind.  However, even though this sounds quite, quite, wrong, I would always back a team of chimps because they are most likely to stand the test of time.

Note:  Orang-utans are endangered mostly because their habitat is being eaten away by development.  Chimpanzees are much higher in numbers - their major threat is hunting for bush meat.

I'm a Managing Director, Get Me Out of Here

Sometimes, when a Chief Executive or Board Director sends a CV to Equity Quest he or she isn't really looking for a new job more they are saying 'I'm a Director, get me out of here."

At Equity Quest we recruit Managing Directors and board level executives for Private Equity.   Private Equity will be looking for executives for their portfolio companies.  Some of the CVs we receive however are from people who are frustrated and tired of their present ownership structure and the lack of investment.

Perhaps sometimes Managing Directors and other directors should consider staying put and buying out their business in a Management Buy Out and take control of their futures'....and perhaps make themselves handsome returns in the short term future.

As a rough rule of thumb, for a business to be bought out using Private Equity and bank funding, there needs to be profits or potential of profits in excess of £2m p.a.  However, businesses in deep distress will also be considered if there is a rescue plan and potential of great returns. Small businesses in distress probably wont qualify.

Financial backers will need to be sure the buy out managers have the skills and experience and can fly on their own without the support of the previous owners.  Should there be a skills gap, you, your advisers or even the Private Equity firm may introduce an external candidate. They will turn to specialist companies like Equity Quest to search the market for people who can work both with management teams and their private equity backers.

MBO teams often comprise of 3 or 4 individuals; a Managing Director, Finance Director, Sales Director and Production/Operations Director.  Assembling this team is often the hardest.  Maybe it is one of the directors the potential MBO leader doesn't see eye to eye with.  Again, there needs to be a consideration of filling gaps for whatever reason they exist.

Of course there are many steps an MBO team should take to a successful buy out. But the first is the biggest; are you a Managing Director and do you want to Get Me Out of There.....or is it worth staying around and becoming the king of your own jungle?

How To Ask Your Boss for a Divorce

Working in a company is like being married.  You want the same things as your bosses and colleagues but there are ups and downs and stresses and strains.

Often a company is made up of a collection of businesses.  Some will do well and some will struggle and some have enormous potential.  Businessmen at the top, if they are truly motivated by creating wealth for the owners and minimising risks will judge each business on these factors alone.  However, that's not often the case.

Take the example of an engineering subsidiary of a medium sized corporation.  The operation in based in the West Midlands but most of the company is based in London working in sectors relating to each other but only loosely.  The Managing Director of the Engineering business has delivered constant profits but has completed business plan after business plan for expansion and acquisition which will truly dominate his market sector.  But no one wants to invest.  Why?

Often a company is run like a small village - where your face fits or it doesn't.  Anyone who isn't in the village - say in the West Midlands - simply isn't aware of the politics and nuances of life in the village.  Facts, often, don't matter.

If this is the case and the MD of the Engineering business wants to progress he should seriously seek a divorce from the company and buy out the business in a Private Equity backed Management Buy Out.

If your wife or husband came to you and asked for a divorce and there had been no arguments, no drama, then you'd be shocked and disappointed and seriously question their motives.  That's what it is like with a commercial divorce and it can be quite dangerous for the executive involved.

Often the best thing to do is to seek out and build a very tight team who would be the nucleus of the management which is ready to buy out.  Make sure that each of them can be trusted not to talk for now.  A plan should be built - often this is on the shelf already - and then seek external help.

Potential MBO teams should contact a third party to act as an intermediary between them and the company bosses.  A plan should be built for the third party to approach them with a presentation which shows all the benefits in the separation - not least the new financial injection to the company.   This especially applies to the situation where the executive is trying to buy out the whole business from the owner/entrepreneur/founder where emotions are often higher.

Key to everything is timing, patience, care and planning.  The rewards for a MBO are there, they wont go away, just be cool and calm. Recognise the fact that many bosses will see it as a rejection of them personally, they may also be jealous so put the £s aside and think about the motives and feelings of the decision makers....that is key to a successful Management Buy Out and a civilised divorce.

Britain's Trapped Entrepreneurs

When bright young men and women join their first company, full of ambition, they might not be aware that they are signing a life time's personal contract; one which ties them to corporate life forever.

As executives climb the corporate ladder, turning their skills towards the politics of promotion, they accumulate both wealth and debts - the very things that tie them to the career choice they made years before.  Quite frankly, even the most driven of people find it practically impossible to step out and 'do their own thing' - their lifestyle wont permit it.  This is often cemented as children come along and the executive has their partner and kids to think about before they follow their dreams or bright business ideas.

Of course true entrepreneurs, the Bransons, Sugars and Trumps of this world are too driven to even join the corporate ladder.  But they are exceptions. So what do bright executives do?

There is a solution; a Management Buy Out or a Management Buy In (MBO/MBI).  As the names suggest this involves buying a company, often with others as part of a team, with external financial help.  Management Buy Outs - where the executive is employed by the company they are buying is far more common than a Buy In where that executive attempts to buy a company based on his knowledge of the market and the company from outside the organisation.

MBOs will need a good team, a leader, a credible growth plan and plenty of cash.  Many MBOs are funded by Private Equity (often called Venture Capital)  who are convinced by the executive that they have a plan which will give them both a great return.

Private Equity firms, many of which are based in London and reach out across the globe, manage funds supplied by pension companies, investment organisations and even the wealth stored up in 'family offices' - homes for the money of the super rich.   Their job is to seek opportunities for Buy Outs and they need to be convinced by the three P's; the People, the Plan and the future Profits.

Before a MBO is considered the executive has to take his or her first big risk.  The potential Buy Out executive needs to ask the boss if they can do the buy out.  This is often the most difficult issue for a number of reasons:

1  The company, division or subsidiary may be too valuable to the present owners
2  The executive may not have a good relationship with the boss or owners
3  This shows the boss the executive may not be committed and ruin future prospects
4  The boss may be jealous - his underling may end up richer than him!

There are many other reasons, least of which are to do with business, more to do with the emotional context of working in a big organisation.

Many mangers who have successfully executed a MBO/MBI have grown very rich as a result.  Working with Private Equity is not just about money and returns.  They bring expertise, knowledge, a huge network of connections and they help managers of their portfolio businesses keep their mind on the ultimate goals; growth, value, cashflow, profits and selling the business on to make great returns for their funds and the executives brave enough to have that first conversation with their boss.

How to Escape Your Head Office

Businesses in Britain are often run like small fiefdoms.   Even the largest companies, some with thousands working for them are often reliant on a small group of executives, not all on the board, for their future.

Often, subsidiaries, based in other locations other than head office, are excluded from the vital discussions which can effect investment in their businesses and growth becomes harder.  Being excluded leads to frustrations and the best solution may be a parting of the ways.

The most beneficial solution may be for the key executives of the subsidiary to propose a Management Buy Out. Here, the executives put together a business plan, seek finance and propose the buyout to head office.

Private Equity Companies are probably the only place in the economy right now who have the cash to fun medium to large buyouts.  Banks are over cautious, government doesn't have the money and the stock market is jittery at the best of times.

According to Equity Quest Partner, David Titmuss, "The potential for key executives to take their company and make it fly is enormous.  Unfortunately awareness of the Private Equity solution and, sometimes, key executives run scared of this solution as they have not understood how it works."

Titmuss says that the 'big conversation' is the first one.  Deciding to take that peek out of corporate life and find out more.  "At Equity Quest we're happy to have that conversation. Primarily we're a recruitment firm - we find executives for Private Equity portfolio companies.  But we're also happy to make introductions.  There are hundreds of firms out there and it can be a bit daunting at first."

Success stories abound.  The interests of Private Equity and key executives are perfectly aligned.  Both want the business to grow and both want to make money and create growth.  Maybe it is time to have that chat and escape the Head Office chatter.

The Quest For Cash – Britain’s Hidden £Billions

Experts estimate that in excess of £50billion is ready and waiting to fund growth in British Businesses – but it isn’t in the banks.

Over the last four years the most common theme coming out of the financial crisis is the lack of cash for investment in British business.  The banks have simply been too cautious to lend, government doesn’t have it and even wealthy companies are hording their reserves in case times get worse.

Where is the cash?  It is tied up in Britain’s Private Equity community – often referred to as Venture Capital.  

Industry experts estimate that over £50 billion is ready to invest in British and European businesses. Private Equity (PE) amasses cash from pension funds, investment companies and a surprisingly large number of ‘family offices’ – home for the cash of the über-rich around the world.   These trust PE to invest their money and give greater returns than other investments.

David Titmuss Partner in Equity Quest and a veteran of PE backed businesses said, “Its crazy, the money is there ready and waiting.  Private Equity Firms are crying out for new investments – they are looking for management teams who want to buy out their company and invest money to make it grow and prosper.”

Equity Quest has just completed an intensive study of the Private Equity community in London and found that it is surprisingly small but very powerful.  Titmuss, former CEO of Reader’s Digest – itself saved by Private Equity, said “There are just under 2000 Private Equity professionals in London.  They all work within one mile of each other so it’s not the City, its more like a village.  The key decisions are made by no more than about 150 people – the ‘elders’ of the village if you like, but they may hold a key to recovery in the UK.”

Equity Quest introduces CEO’s, directors and entrepreneurs to Private Equity.  It doesn’t get involved in start ups.  Equity Quest states that Private Equity is interested in the following types of business; businesses or divisions where there is great potential but the current owners wont or can’t invest and struggling businesses facing possible closure where a turnaround is needed. 

According to Equity Quest, Private Equity firms are staffed by Britain’s intellectual elite. Over 50% of all UK born Private Equity managers studied at either Oxford or Cambridge – more than any other industrial sector.  In their recent survey according to BDO, the leading accountancy firm, found that 94% of Private Equity professionals say that now is a great time to invest with 96% believing investment activity will increase.  They are just as keen to invest in distressed businesses as firms with great potential.  And with £50 billion in their war chest, they could just possibly bring much needed growth to the UK providing and protecting much needed jobs.

David Titmuss concluded, “If I was working in any company in the UK right now faced with poor investment, lack of confidence by the owners or in one where there is great potential I would be talking to Private Equity.  I have helped save three big businesses from closure and that means I have saved much needed jobs so even struggling firms could look to Private Equity as a solution. The problem is there is lack of awareness, misunderstandings about the role of Private Equity and a marked inability to communicate.  I guess that’s why we created Equity Quest – its good to talk.”