A vendor initiated management buyout (VIMBO) is a virtually identical process to a management buyout (MBO) with one key difference; the vendor (selling company) is the one making the approach to the management team rather than the other way around. A finance package is typically proposed by the seller in order to allow the transaction to complete. This often involves using some of the business’s cash resources as an immediate lump sum before using its future profits to fund the purchase on deferred terms.
In the current market, mergers and acquisitions (M&A) are not always straight-forward, and so a VIMBO may prove to be a fruitful alternative for those looking for a business exit strategy.
The benefits of a VIMBO are evident; a company owner can initiate the deal on his or her terms and immediately realise cash. Going forward, their financial risk in the business in minimised, yet the value in it can be crystallised through cash or loan notes that continue to be paid to owner for a designated number of years– enabling them to maintain an equity stake. The upshot of which means the vendor can share in any future profits and oversee the succession of the business to the management team.
Often utilised by retiring business owners as a way to pass their company down to the next generation, sellers can also take advantage of entrepreneurs’ relief should they meet the criteria and receive clearance from HMRC. This not only makes a VIMBO a tax-efficient way of disposing of a company which is no longer required, but also allows for a smooth transition process between the current and incoming owner.
At BTG Advisory, we make it our responsibility to manage the many complexities of the VIMBO process and to ensure that management teams remain focused on maintaining the performance of the business during this crucial time. We offer sound, robust, and impartial advice throughout what can often be an emotional rollercoaster of a process.
A VIMBO can be a sensitive transaction and it's crucial that the vendor fully explores what this option entails before reaching out with an official proposal. They may also want to consider a trade sale or, at the very least, compare the pros and cons of each potential process. We can help provide salient advice in this regard and will work with you to ascertain the best solution going forward. If a VIMBO is appropriate, you would need to ensure the management team are happy to proceed and that the ongoing business operations are not negatively affected during the process. Calling on our enviable experience can ensure the most efficient and timely outcome for both the vendor and management team alike.
If you are exploring the possibility of a vendor initiated management buyout for your company, the experts at BTG Advisory are on hand to help. We have the experience and expertise to deliver honest and sound advice to our clients who are looking at potential exit strategies.
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