Number of MBOs down 49% compared to just two years ago

Businesses more cautious about taking on debt

Brexit risks slowing down essential change of ownership needed to reinvigorate UK businesses 

The number of management buyouts (MBOs)* in the UK has dropped by 10% in the last year**, as Brexit fears negatively impact management’s and private equity’s perception of risk says Moore Stephens, the Top 10 accountancy firm.

In addition, Moore Stephens says that MBOs are down by 49% compared to only two years ago, when 112 private equity-backed MBOs were completed.

Moore Stephens says that a major driver behind this drop in MBOs is the political and economic uncertainty related to Brexit, which has resulted in nervousness from management in making any ‘risky’ moves, such as taking on significant personal debt as part of an MBO. Private equity funds which back these MBOs are also more cautious over the multiples they pay in these deals as visibility over UK GDP growth clouds over.

Moore Stephens say that there is little evidence to suggest a lack of supply of debt funding to deploy in MBOs, but rather a reining in of appetites amongst the management teams that would be holding the equity after the MBO.

Some sectors, such as financial services, face the possibility of increased operational costs due to Brexit. Brexit-related knocks to confidence may have contributed to the overall number of M&A deals dropping by 22% in the last year.

Moore Stephens says that the lack of MBOs may be damaging for the economy in the long-term as it can prevent the reinvigoration of businesses driven by a change of management control. Through an MBO or MBI, businesses can benefit from the implementation of new ideas and an overhaul of strategy that can subsequently drive growth. Ownership moving from one generation to the next can bolster what might have become a ‘lifestyle’ business for the previous owners. From a tax perspective, concerns from business owners on the Entrepreneurs’ Relief tax changes which the Government has implemented has also caused some MBOs to be put on hold.

Examples of MBOs that went ahead in the last few years include:

  • The management of Timico, the internet, hosting and communications service provider, acquired the company in a MBO backed by Lyceum Capital Partners, in February 2017
  • The management of Rush Hair Limited, the hair and beauty salon, acquired the company in a MBO, backed by LDC (Managers) Limited in January 2017
  • The management of Evans Cycles, the bicycle retailer, acquired the company in a MBO worth £100 million, backed by ECI Partners in May 2015

Debbie Clarke, Head of M&A at Moore Stephens says:

The pre-Brexit world creates significant uncertainty which has had a damaging impact on the number of MBOs that are completing.

“MBOs are vital part of how the UK keeps businesses at the cutting edge of their industries on a national and international stage.

“They encourage the refreshment of strategy and innovative leadership at senior management level, and give companies a greater opportunity to compete more effectively and pursue growth.

“More than ever, it is vital that UK businesses remain ahead of their global rivals in order to strengthen the economy in times of uncertainty, and MBOs support this objective.

The number of MBOs has fallen in the last year due to Brexit related economic uncertainty

Fewer MBOs* Analysis conducted on PE-backed MBO deals reported on Mergermarket

** March 31 2017 year-end

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