Vendor Assisted

After we have looked at the mount of equity that can be raised and the debt capacity (sometimes restricted by serviceability), we are often left with a shortfall between funds raised and consideration.

This is where the vendor has to play his part and step in as the “balancing figure”.

Deferred Consideration

Deferred consideration is becoming an increasingly common component of the funding structure in today’s Management Buy Outs.   The vendor’s realise that by helping the MBO team is often the only way a deal can be done.

Indeed, many 3rd party loan providers may well insist that the vendor “stays in” with deferred consideration in order for them to show continued support in the business.

The deferred consideration is the element of funding that is “deferred” in repayment behind other loans.  Quite often we see Management Buy Out’s where the deferred is paid down in multiple tranches as the MBO team return to the senior debt provider once debt is paid off.  This can be 2 or 3 times.

The terms of the deferred consideration vary from deal to deal, this is in respect of interest, security (if any), obligations to buy back shares, term repayment or bullet repayment.

In most cases, the deferred consideration ranks behind other lenders in the security “pecking order”

Earn Out

An earn out is where the deferred consideration carries some upside benefit to the vendor.
Additional consideration or a premium is paid if certain financial performance targets are attained.  Similarly, the deferred consideration can be limited or reduced if performance targets are not attained.

The “safety net” is often implemented to reduce the price for the MBO team if the consideration was based on future events happening that fail to materialise – large orders, loss of customers, new technology etc.

Why choose Sterling for MBO Funding

Access to Funding

Access to niche lenders outside of high street banks willing to fund MBo and MBI.

Experienced Professionals

Our advisers are qualified chartered accountants with extensive corporate finance in large accountancy practices. Your case will be dealt with by experienced personnel not trainees or juniors.

Deal Size

Most advisers are restricted to larger deals of >£1m EBITDA. We specialise in both smaller and larger MBO's.

Menu of Services

We are happy to provide a full lead advisory service taking MBO's from offer through to completion. We can also tailor our services to be restricted to fund raising only, ideal for situations where current advisers have structured and advised on a deal but are struggling accessing finance.

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