As firms in the UK and Ireland begin to feel confidence
returning to their markets, the appetite for management buyouts (MBOs) is
growing.
The big challenge for many potential management
buyouts is funding the investment without compromising the business with loans
or finance deals it may struggle to cope with once the new management is in
place.
One flexible, fast solution is to use a blended
mix of invoice finance and asset based lending (ABL) to raise the cash required
from the business. This will typically involve invoice discounting or invoice
factoring, helping to raise cash from outstanding invoices. This may then be
backed up with an ABL facility based on the firm’s property, stock, plant and
machinery or commercial vehicles.
Management teams are often surprised at the
level of cash this approach can raise. With one client in the food wholesaling
business, we managed to finance over £11m, with ABL raised against the level of
their stock in addition to invoice discounting.
The great benefit of this approach is that it
also provides a flexible line of credit after the MBO. Unlike an overdraft or
bank loan, which typically has fixed rates and limits, invoice finance and ABL
can grow with the business, helping to fund the ambitious plans of the new management team.
