News A Tartan MBO?

The debate about Scottish devolution certainly seems to have ratcheted up in recent days. Dave claims we have seven months to save the country whilst Alex, dispensing with any notion of intellectual rigour, has called Dave a “big feartie”. Cue playground scuffle.

At any rate, here at BHP Corporate Finance we live the Union dream with a happy mix of Celts and Anglo Saxons. Indeed with two of the three partners (Hamish and Donald) sporting names as Scottish as Irn Bru and deep fried Mars Bars, some might think the Scots are over represented – echoes of the Blair government perhaps?

Anyway, irrespective of your political views on devolution, it struck me that there are some parallels between the SNP’s drive to succeed from Union and a management team looking to buy a business.

• A well thought out business plan – this is central to any buyout and should clearly articulate the investment proposition. I’ll not make any comment on the SNP’s plan other than to say at 670 pages its first and last touch point at any buyout funder would likely be the round filing cabinet.
• A properly structured funding package – the right mix of debt and equity funding to match expected cashflows and allow sufficient headroom for bumps in the road ahead (whether that’s the high road or the low road). Unfortunately for most management teams, the option of sequestrating shared assets from the existing shareholders is not usually a course of action open to them. Thankfully banks are now more willing to fund change of ownership deals and private equity’s war chest remains undiminished.
• A comprehensive transitional service agreement – for corporate subsidiaries leaving the mother ship it’s important to ensure continuity of support services such as IT and accounting until the buyout team can put in place their own arrangements.  Defence of the realm and national currency are fortunately matters that do not trouble most MBOs.

The other common factor between devolution and buyouts is the need for experienced and pragmatic advisors.  Whilst we cannot claim any expertise in helping countries become independent states, we do have a wealth of experience in helping management teams acquire businesses.