31st August 2018

Adam Boakes insight into the current MBO market


• Many brokers want to achieve a restructure or an MBO but are hampered by two main factors;

o Politic
o The fact that the shareholder earns a good living off the firm and is reluctant to exit
o Fear of change

• Age and wealth mis-match form the main reasons for the need to restructure

o Financial
o Banks have been risk adverse for the last 10 years + even though Insurance Broking is generally a very steady business model
o Future want-to-be shareholders are put off by personal guarantees and other financial implications imposed when borrowing money
o Banks rarely understand “lifestyle” businesses and don’t understand why EBITDA is not higher in proportion to turnover

The Ataraxia Model

• We spotted that many brokers would require “liquidity” in order to achieve certain goals within the business
• 2800 Independent Brokers remain in the UK
• A high % of the proprietors are in their 60’s with no clear exit or retirement plan – many talk about this with the team but no solution is forthcoming – the business can flatline
• Banks and lending institutions have been slow to support the broking sector
• Insurance Companies do not like change and would rather the brokerage enjoys continuity – this led to the idea that Insurers would support the financial aspect of the Ataraxia model

Ataraxia Approach to MBO’s

• Although we can raise the majority of the capital through our placement strategy with partner insurers to buy the shareholder/s out at a competitive market multiple – we provide the opportunity for the management to buy in using our money – this is given not lent
• We have tax efficiencies throughout all our plans, both for the exiting proprietor and the new management/shareholders
• This means that there is far less financial strain on the plan and the team can focus on the practical aspects of the deal
• The business cashflow is not stressed at any point and the business can prosper
• The insurance companies, clients of the brokerage, the new management team and Ataraxia all benefit as the business will prosper and create continuity

Case Study

• A broker requires £1,200,000 to buy out the majority shares of an insurance broker – the proprietor wants to exit and owns 85% of the brokerage
• The bank has informed the management team that they will need to find 40% of the capital and take Personal guarantees to borrow the remaining money – the rate of borrowing is 6%
• This would put massive financial strain on the business

The deal doesn’t get off the ground

• Ataraxia get involved in dialogue with the broker
• The Ataraxia model can generate £900,000 of capital generated by its insurer partners
• Working with their capital partner a loan is secured for the balance being £300,000 – borrowing is easy as cashflow can support it and the rate achieved is much better – no personal guarantees imposed
• Ataraxia’s contribution would equate to about 75% of the shareholding but they opt to take a 30% stake – thus providing the opportunity for the younger management to share 45% without any financial duress or personal cost
• This paves the way for the deal to happen

Money (or lack of) is generally the stopper for most small businesses. We are about to close our third MBO deal this year and the appetite is ever increasing;

Why?

 Proprietor/s want a retirement plan
 Young guns want to buy in
 Selling to a consolidator will only satisfy one party
 Selling to the management will satisfy everyone

Author

Adam Boakes

Managing Director
Phone: 07817 039555
Email: aboakes@ataraxia.co.uk
Website: www.ataraxia.co.uk