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13/12/2013

Buying into the future

Your client has built up a successful business and is ready to retire or step down. The economic climate may have delayed their plans, but they’re now keen to assess their options.

Most businesses will face succession issues and it’s a particularly significant issue for many Welsh SMEs.    

Government figures indicate that on average a third of UK businesses will change ownership in any ten-year period. Added to this, only one in eight family businesses survive to a third generation of ownership by the same family.

Finance Wales is currently seeing an increasing number of applications to fund management buy-outs (MBOs) of Welsh SMEs. 

Succession - where preparation meets opportunity

Without a clear succession strategy, selling a business can be difficult. The business could be undervalued or even face closure.

While trade sales are popular, many owners overlook MBOs. Owners and potential buy-out teams can often be put off by a number of misconceptions.

Challenging misconceptions

The current management team are potential new owners, but your clients may believe:

  • They’re not interested in purchasing the business.
  • They’re not capable of running it.
  • They could not secure the finance they need. 

In many cases, the current management team may even be unaware of the owners’ intentions to sell the business until it’s too late. They may have some excellent ideas to develop and grow the business.

Smooth the transition

Early action and some advanced planning can help overcome such misconceptions, giving the owner time to understand the management team’s plans and the buy-out team time to arrange the funding.

Finance Wales has a track record of backing SMEs. We encourage owners or managers to talk to us and use our experience and expertise to help avoid potential pitfalls.

Realistic valuations

Valuations need to be realistic and the current economic climate has undoubtedly had an impact.

Trade offers may look attractive initially, but can change before the deal is finalised, while an MBO can potentially offer greater certainty and ultimately a better return.

Three steps to succession

  • Create a robust, formal succession plan – work with your advisers to cover all angles.
  • Is there an obvious buyer - would any existing senior managers like to buy the business?
  • For the buy-out team, Finance Wales has the funds and expertise to structure the right funding package.

What next?

Contact us to find out how we can structure the right investment for your client.