Friday, January 27, 2012

What is the role of a lead advisor Management buyout (MBO)


Written by Neil Ackroyd


A lead advisor is one of the most important roles in a Management Buyout (MBO) transaction. Typically he or she is the first person that you approach when you are given the once in a lifetime opportunity to do a Management buyout (MBO). The lead advisor is so named because they have the skills, experience and personality to lead you through the process but also lead you team of further advisors to the goal of completing your Management Buyout (MBO) transaction.

Your lead advisor must be your closest and most trusted advisor for the next 3-6 months of doing a deal. They know what you don't, they will cover your back from risks you don't know exist and guide you past pitfalls that you can't see. You don't have to be best friends with them but YOU MUST TRUST YOUR LEAD ADVISOR, otherwise it is very difficult for both of you. Therefore the most important facet of your lead advisor is INTEGRITY, not just you but the market as a whole must trust them. If you meet an advisor and their CV or experience doesn't stack up, walk away, there are plenty of real advisors in the world who do stack up.

Management buyouts are generally funded by Venture Capital or Private Equity. Cutting to the chase, these professions are exceptionally well paid. Given the old saying money attracts brains it is very true that VCs and PE players are some of the sharpest and most intelligent people I know. I know a VC who was a research physicist at Oxford University, then decided to go into management consultancy so joined the Boston Consulting Group for a few years before going into Venture Capital. That individual also speaks four languages fluently. He is not an isolated instance, many of my friends in the Venture Capital and Private Equity arena are qualified Doctors, research scientists, etc. Contrary to some public and press propaganda these are very very clever guys and girls. They will look very closely at the detail of your business to protect the money they are investing on behalf of their investors. Your lead advisor is your man playing man on man with these guys, its not about confrontation or contention necessarily, but if your main advisor is not on a par with your funders the problems that you will run into are really obvious.

It is essential that this individual, therefore, be able to fully understand and execute all elements of the process in a granular level whilst remaining focused on the big picture of completing the deal. This is why, particularly on a Management Buyout (MBO), your lead advisor must have an exceptional technical background. Here is a four point plan to help you understand what to look for in your lead advisor.

 EXPERIENCE AND INSTINCT - Assessing whether the deal is viable given the vendor price expectations and his knowledge of the funding environment is done through a combination of excellent technical skill, experience and finally a feel for the subtlety of a deal.

CONTACTS - Your advisor should typically have years if not decades of experience in dealing with the top funders in the city and quite often will have come up with some of the senior guys. This does not mean it is an inside job, rather it gives them some leverage on your behalf.

TECHNICAL SKILL/EXCEPTIONAL INTELLIGENCE - It is essential that your lead advisor has the experience AND intelligence to understand complex issues and financial structuring in your transaction. This is the principal difference between a lead advisor and a broker. Many brokers are effectively double glazing or used car salesmen, they have some skills but no real depth or substance, a lead advisor will not only have numerous professional qualifications but will also have passed their exams with exceptional marks. 

A TRUE LEAD ADVISOR WILL HAVE BEEN TRAINED FOR 8 YEARS PLUS BEFORE BEING ALLOWED TO ADVISE A CLIENT - If this isn't the case they will resort to table thumping in negotiation or just misunderstand issues and cost you money. Managing a management buy-out isn't rocket science but generally the guy managing it for you should have had rocket science as a genuine career alternative. A good trick when meeting a lead advisor is to give them a whiteboard and 3 minutes to explain structuring of a management buyout and how it delivers value to you. If they can't make that simple for you and just waffle, then they aren't your man.