Brexit is blamed as management buyouts plummet
THE number of management buyouts in the UK has dropped by 10 per cent in the past year, as Brexit fears make company managers and private equity funds wary of taking on risk.
Top ten accountancy firm Moore Stephens also found that MBOs were down 49 per cent from two years ago, when 112 private-equity backed deals were completed.
The firm, which studied the number of MBOs in the 12 months to March 31, said political and economic uncertainty related to Brexit was a major driver behind the drop in deals.
It had resulted in management nervousness over moves such as taking on significant personal debt as part of a buyout. The study found private equity funds that back these buyouts were also more cautious.
Brexit-related knocks to confidence may have contributed to the overall number of merger and acquisition deals falling 22 per cent in the past year, according to Moore Stephens.
Debbie Clarke, head of mergers and acquisitions at the firm, said: ‘The pre-Brexit world creates significant uncertainty, which has had a damaging impact on the number of MBOs that are completing. These are a vital part of how the UK keeps businesses at the cutting edge of t heir i ndustries on a national and international stage.
‘They encourage the refreshment of strategy and innovative leadership at senior management level, and give companies a greater opportunity to compete more effectively and pursue growth.
‘More than ever, it is vital that UK businesses remain ahead of their global rivals in order to strengthen the economy in times of uncertainty, and MBOs support this objective.’
She added: ‘We’ve had a couple of MBO opportunities that have gone away, purely because the managements have got nervous. We’re seeing it in reality as well as through the numbers. Some of those come back. They don’t go away forever, and I think there’s a lot of dormant activity waiting to happen.
‘But others may turn into a trade sale. If the vendor needs to retire and realise some cash then he can’t wait for a management buyout team to be ready.’
On the upcoming Election, she said: ‘I certainly expect a bit of a hiatus while everyone waits to see what happens.
‘It doesn’t really matter which political party comes in, there’s still capital, there are still businesses that need to do management buyouts, so those deals will come back.’
Examples of MBOs that went ahead in the past few years include Timico, Rush Hair and Evans Cycles. The management of communications services provider Timico acquired the company in a deal backed by Lyceum Capital Partners in February. The management of hair and beauty salon chain Rush Hair bought the company with the backing of LDC (Managers) in January. And the bosses of retailer Evans Cycles acquired the company in a £ 100 million deal backed by ECI Partners in May 2015.
From a tax perspective, concerns from business owners over the changes to Entrepreneurs’ Relief have also caused some MBOs to be put on hold.