United Kingdom
Offering a lifeline to Yorkshire businesses - Tim Clarke
There has been a noticeable lack of M&A activity this year in Yorkshire and predictions are that 2010 could also be a quiet one. To help stimulate M&A activity in the region, we have developed a new service that could provide a lifeline to Yorkshire’s businesses.
The Owner Buy Out (OBO) model is a lower risk alternative to many current exit options, as it offers the potential for significant cash realisation without the need to dispose of the business to a third party. Careful structuring can allow owners to retain significant ownership of their business and it is also very tax efficient under current UK taxation rules.
I see many private companies becoming frustrated by the perceived lack of viable exit options, depressed prices and execution risk. In addition, this trend is particularly apparent in mid-market buy-outs where deal processes are becoming longer and more onerous and issues encountered quickly become insurmountable.
An OBO provides the vendor with a phased exit strategy yet allows them to reinvest in their own business, which may deliver significantly more value than they would typically realise in a more traditional exit. A full exit can then be achieved in the future when corporate valuations have recovered. A commercial transaction of this nature should be classed as capital for taxation purposes, and with current capital gains tax rates at 18 per cent, it is a good time to consider it as rates are likely to rise in the future.
Adopting an OBO strategy can be a catalyst for change for a variety of operational issues and is particularly appropriate when there are succession issues and a willingness to retain and incentivise key management.
People businesses and those that have a strong emphasis on continuity and customer relationships are particularly suitable, as are those that have talented second tier management but where a further period of transition is required for them to fully adopt a leadership role.
It's been a tough year for many businesses but the launch of OBO now is right for the market that we are currently in as it can help achieve the majority of shareholder objectives. The OBO may be applicable to as many as over 500 companies in the region who could benefit from this model.
If you would like to discuss this subject, please contact Tim Clarke, Partner at BDO.