26 July 2012
Looking to sell your business in the future or have struggled to do so, why not consider a VIAMBO? It is an alternative to traditional sales and MBOs.
What is VIAMBO?
A VIAMBO is a Vendor Initiated Assisted Management Buy Out. It is a sale of the business to management whereby the owner initiates and assists in funding the deal. This can be an attractive option for all parties involved (the vendor, management and bank) providing advantages to both buyers and sellers offering a low risk, high reward option when reflecting on their future direction.
It can be a viable alternative to the traditional MBO. It is particularly relevant to owner managed businesses that are looking for an exit strategy in difficult economic circumstances.
How does it work?
1. The vendor agrees a price for the business with the management.
2. All or part of the shares can be disposed of (it is recommended at least 60% is sold).
3. Part is paid as cash up front. Most is paid as a corporate IOU over an agreed term (agreed terms and conditions are included within the corporate debt to ensure the vendor retains certain controls over the business).
4. An amount of bank debt may be raised however this is not always necessary. The acquiring management team may invest a small amount of cash themselves.
- There are no complicated funding negotiations. The bank is providing a relatively low or no level of finance so has limited exposure. Banks are therefore keen to support VIAMBOs.
- Sales are tax efficient, with the vendors limiting their effective tax on the gain to 10% (subject to qualifying conditions).
- The possibility of a premium price – reward for delayed payment.
- The vendor effectively retains control of the business until fully paid thus reducing the risk of the business and deal falling over.
- Vendors do not need to give onerous warranties and indemnities.
- Minimal impact on the business compared to third party sale or traditional MBO. The management team are not distracted from running the day to day operations of the business.
- Goodwill transfer issues are avoided. As vendor often remains involved and the management team is still in place, no knowledge is lost from the business and no external relationships weakened yet the business is able to enter a new phase of development.
- The terms of the deal mean that the vendor can be protected if the management team is unable to meet the loan note commitments.
- The management team gets shares.
Fpr further information and advice on VIAMBOs and business succession planning, please contact us on 01788 539000.
Magma is a leading firm of Chartered Accountants and Chartered Tax Advisers, providing a wide range of professional advisory services to owner managed businesses and private individuals. Magma thrives on its work with entrepreneurial businesses and their people. Magma works closely with its clients, delivering proactive and innovative advice. Our focus is on building long term relationships with our clients to help them and their businesses succeed, reduce taxation and create, increase and protect wealth. Magma offers a breadth of technical expertise and specialist advisers across six integrated service areas: Audit and Assurance, Business Services, Corporate Finance, Corporate and Business Tax, Private Client Tax and Wealth Management.
This document has been prepared as a general summary. It has been written for information purposes, should not be relied upon and is not a substitute for professional advice which should be sought. This document does not constitute taxation, financial planning or investment advice. Neither Magma Chartered Accountants or any of its employees accept any responsibility for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document. Magma Chartered Accountants is the trading name of Magma Audit LLP, a limited liability partnership (Registered in England No. OC370086). Magma Audit LLP is a subsidiary of Magma Partners LLP (Registered in England No. OC370051). The registered office of both LLPs is: Bloxam Court, Corporation Street, Rugby, CV21 2DU. Registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales. Magma Partners LLP is registered with the Chartered Institute of Taxation as a firm of Chartered Tax Advisers. A list of members is available on request.