The UK lower mid-market is experiencing a rise in “vendor-initiated” deals characterised by sellers wishing to retain a stake post-transaction, according to banking group Investec.
Investec’s growth & acquisition finance team has reported a four-fold increase over the last 12 months in the number of vendors supporting the management buyouts of their own businesses. The vendors do this by using loan notes or retaining a stake in the equity structure of the new company, the bank said.
Earlier this year the bank financed the management buyout of headhunting firm Odgers Berndtson from parent company OPD Group, a deal in which the management team acquired 50.5 percent of the business for a consideration of £16 million (€19 million; $24 million). OPD held on to the remaining minority stake.
These deals are becoming more widespread as entrepreneurs, keen to effect some sort of change of ownership either for retirement or other reasons, come to terms with the fact that prices have dropped over the course of the financial crisis.
“Vendors are staring into the distance now and thinking ‘this is the way of the world for the next few years’,” said James Cullen of Investec’s growth and acquisition finance team. “Rather than accept a lower multiple for the entire business, they can initiate a deal and remain plugged into the upside.”