The Generation Game

MSIF Investment Director, Simon Thelwall-Jones, discusses one of the biggest issues facing local SMEs

Posted by Simon Thelwall-Jones

MSIF Investment Director

Tue 25th, Sep

We recently commissioned some research which showed that there are well over 20,000 SMEs in the North West and North Wales in which their Directors are aged 55 or over.

Whilst some of these businesses will be passed from one family generation to the next, there are a large number where succession planning (i.e. who to hand the business on to when the current owners wish to retire) is a significant issue.

Over the past 25 years, MSIF has provided finance to over 2,000 businesses, including a large number of Management Buy-Outs (MBOs) and Management Buy-Ins (MBIs). This was achieved by way of debt (loan) finance and equity investment, which can be the solution to the succession planning problem.

Often we find when talking to business owners, there is a misconception about whether their senior or middle-management can afford to buy the company from them, and/or whether those managers have the skills necessary to take over the running from the current owners.

In terms of tackling the first concern, the reality is that we provide most of the finance to fund the MBO or MBI deal, with the managers having to put in a small contribution from their own money (in some instances they have been promised bonuses for assisting with the sale of the company and these bonuses are used to fund their shareholdings).

MSIF has completed many multi-million pound deals where 90% plus of the funding has come from us.

As far as the calibre of the senior/middle management team is concerned, we work with a number of highly experienced business men and women, who often balance the skills of the existing management team. This enables the managers whom work for the business take it over whilst continuing to benefit from on-going guidance and wisdom, which can be lost during the transfer of ownership.

Funders can be wary about backing MBIs but we’ve had some great successes! Last year we backed the Management Buy-In of Delta Rock (North West) Limited, providing £750,000 of loan finance in support of the takeover of the company and, I’m very pleased to say that we’ve been repaid already, as the business has gone from strength to strength.

But that’s not the only way we play “The Generation Game”.

We’ve found in our experience that a lot of businesses are re-invigorated by the next generation once they take the reins.

Whether it’s a family business passing from Mum and Dad to their Son and Daughter, or non-family members slowly being given larger and larger stakes in the business they work for, we regularly see companies which have shown fairly modest or no growth over the past few years, suddenly start to grow by 20-30% year on year. Particularly where we’ve provided them with development capital (again by way of loan or equity) to assist with them with their expansion plans.

A great example of this would be Forshaw Group, in which we provided a £500,000 investment through a Management Buy-Out deal. Since the takeover by second-generation directors, they have doubled their turnover, employed 36 new staff (plus 150 subcontractors) and again, repaid MSIF early due to their success.

If you would like to find out more about what we can do to help you and your business, whether that’s assisting with your succession plans or growing your business post a change of ownership, please contact us 0151 236 4040 or via our website www.msif.co.uk.

We would love to help if we can.

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