There is never a wrong time to discover what it will take to negotiate a management buyout. Debt might deter a management team from exploring alternatives or even a fear that their ideas and hopes will just not be grand enough to impress financiers. But the funds are there for would-be management buyout teams and so if a wealth of Birmingham-based dealmaking expertise - and, although the market has sufffered from a bit of a lull across the UK as a whole the second city seem to be holding its own. Martin Cordey, one of the experienced deal directors based with Lloyds TSB Acquisition Finance in Birmingham, is in no doubt that entrepreneurs should try to follow their buyout dreams. "We would say that anybody considering a management buyout should find out sooner rather than later what the possibilities might be," he says , picking up the theme. "There is often a way of solving the challenges that need to be overcome and it is crucial that a bespoke package can be tailored to individual needs." The 15-strong team at Lloyds TSB Acquisition Finance, based at Colmore Row in Birmingham, has handled 14 successful MBO deals in the last year across the Midlands. This ongoing success has been recognised by fellow professionals who have voted the team Midlands Corporate Bank of the Year in 2004 and 2005. All advisers share the view that teamwork and relationships with clients will often make the difference - business people who have confidence in their bankers are clearly more comfortable taking decisions in the boardroom. One of the deals that, according to Mr Curdey, highlights the importance of building a relationship with bankers, was a new refinancing deal at Integral Services. It was just nine months after a £20 million management buyout which helped enhance the company's future, including 220 jobs in Birmingham. The original deal was struck between Barclays Ventures and Integral's management team, headed by managing director Bryan Glastonbury securing a buyout from its previous owner, Guinness Peat Group in July 2005. The summer of 2005 also saw the beginning of a relationship between the new management team and Peter Anderson, of Lloyds TSB Commercial Finance. Within months, this relationship enabled fresh talks with his colleagues to come up with a refinancing deal to ensure Integral Services would be able to seize fresh opportunities. Integral's management team now owns more than 90 per cent of the company, securing its long-term control of the business and its strategy. "The success at Integral Services shows why it is important for management teams to explore all possibilities," says Mr Cordey. "If a company is going to consider refinancing, the sooner they can do it the better both from an owners' point of view and a venture capitalists' perspective. "The important thing is to develop a deal structure that will work for all parties. They have to feel confident that what is being offered will enable the company to achieve what needs to be done to ensure its continued success. "Management teams who face up to their futures can be in control of their own destinies and know the decisions they take will make the difference. "We feel proud that we have enabled so many management teams to make things happen." That sense of pride is shared by Ian Howey, regional director of the Yorkshire Bank acquisition finance team in the Midlands, who highlights two major hurdles in any MBO transaction - agreeing the price with the vendor and raising the finance. "Typically, in smaller private deals, especially where the vendor is the retiring owner-founder, an auction process is less likely and a deal can be agreed with the incumbent management team before the search for finance begins," he says. "In cases like these the MBO team and their advisers can be more prescriptive about the deal structure they are looking for, setting out preferred levels of debt and equity. "A pro-active bank or equity house will always bring its own ideas to the table but at least everyone knows the target level of funding required upfront." As Mr Howey is quick to point out, the auction process often favoured by the larger corporate vendors provides far more scope for creativity. "The process of raising the finance and formulating the bid need to run in parallel - the vendor will take a bid more seriously if it is backed up by letters of support from both a bank and equity house," he says. "In highly competitive situations, the advisers may even stop short of issuing a guide price to potential funders and let the sum of the indicative debt and equity offers drive the proposed offer." Once into the finance-raising process what are the key drivers? Should the emphasis be on equity or debt? Should you run a beauty parade or make exclusive approaches to nominated funders? Is quantum of debt or equity the most important factor? "Some of the answers probably lie in the characteristics of the target company. Banks will look for a combination of sustainable earnings and cash flow together with a sound asset base," says Mr Howey. "Any target demonstrating either or both of these characteristics will have greater success in leveraging the transaction with the emphasis on senior debt." Finally, it's worth remembering the smallest tranche of finance in the deal, but certainly the one closest to the MBO team's hearts - their own investment. "The mechanics of the MBO process are designed to incentivise the incoming management team by giving them a disproportionately high percentage of the equity for their investment," says Mr Howey. "The amount of cash invested by management need not be huge but should be meaningful - one year's salary is a benchmark that's often quoted but there is no right and wrong answer. "The important thing is not to get so wrapped up in the rest of the deal that there is a scramble to raise the cash at the last minute - whip-rounds at the completion meeting can be so unseemly." ..SUPL: | 
