MBOS surge by a fifth as owners fret over tax clouds

● Private equity sitting on big cash piles eager to fund management buyouts

UK management buyouts (MBOS) surged 20 per cent last year, largely due to business owners being spooked by tax rise fears and private equity being well-financed for deals, a new report says. The number of MBOS jumped to 91 deals in 2017, up from 76 in 2016, says Moore Stephens, the UK’S ninth largest independent accountancy firm, in today’sreport.

Total value of MBOS lifted 4 per cent to £2.7 billion last year, compared with £2.6bn in 2016. Business owners were looking to “crystallise” the value they have built up in their businesses via an exit at just the time there was robust demand to back deals from private equity firms with record high levels of “dry powder” to deploy, the report said.

“The closer than expected general election in 2017 has also triggered activity with owners looking to de-risk in case a future change in govbroader ernment results in the loss of favourable tax incentives such as Entrepreneurs’ Relief,” Moore Stephens added.

“Whereas political uncertainty has been known to dampen mergers & acquisitions activity in the past, in the current climate the reverse appears to be true.”

Meanwhile, it said businesses were finding buyouts were increasingly easy to fund as private equity firms were under pressure to deploy their excess capital.

Worldwide, uninvested capital hit a record high of $1.7 trillion (£1.2trn) in December 2017, according to Bain & Co, the Boston-based management consultancy giant.

Ish Alg, associate director at Moore Stephens, commented: “Many business owners are viewing now as the right time to exit, with MBOS remaining an attractive option for owners whilst also incentivising management.

“In previous years owners have delayed making decisions around exits, mainly due to valuation concerns caused by on-going uncertainty in the economic and political environment.

“Whilst uncertainty does remain, encouraging UK growth stats and a clear deadline for Brexit has helped to calm fears and has undoubtedly contributed to increased valuations.”

Buyouts of tech companies accounted for the biggest proportion – 20 per cent of last year’s total (18 out of 91). Industrials made up 11 per cent (10) and manufacturing 9 per cent (8).

Two examples were Clearly Drinks Group, a maker of bottled soft drinks, whose MBO was backed by Northedge Capital in April 2017.

And Cotswold Collections, a women’s clothing retailer, backed by Rockpool Investments LLP in June.

Alg added: “The availability of debt and equity finance, coupled with strong private equity appetite, means transactions are at attractive valuations.

“With P/E firms sitting on record amounts of ‘dry powder’, conditions for deal-making are ripe to invest and back management teams capable of delivering growth”.