Selling a transport business: How we structured a management buyout

When a transport business owner decided it was time to sell, the initial negotiations with a private equity investor failed to deliver the right outcome. Rather than walking away, we explored alternative options and helped structure a management buyout that worked for all parties.

Here’s how we helped our client navigate the process, find a solution and achieve a successful sale while retaining an interest in the future of the business.

Finding the right route to sale

Our client ran a transport company alongside another business. They decided they wanted to sell the transport company to free up their time to concentrate on the other business, which they felt had greater potential in the long term.

Initially, they were negotiating with a private equity investor. However, they felt, and we agreed, that the multiples being applied were below market value and the conditions of sale were too onerous.

After nine months of negotiations, the deal broke down.

At that point, two of the senior management team, who were aware of the negotiations, expressed an interest in purchasing the company. However, they had no personal resources and could not borrow personally to facilitate a purchase.

Exploring an alternative management buyout

We provided alternative scenarios that could facilitate a management buyout, including giving the buyers different methods that our client would be prepared to consider and explaining how these could be implemented.

Eventually, a deal was agreed to sell 60% of the company to a company owned by the management team.

We took responsibility for drafting the Sale and Purchase Agreement (SPA), and the parties decided they were prepared to proceed with the agreement without formal legal advice.

Structuring the deal and managing cash flow

A key issue for our clients was the impact on their personal cash flow, particularly as the tax would be payable before all the deferred consideration had been received.

We built a financial model that included their drawings from both businesses and their tax liabilities. This could be flexed depending on what happened to cash flow in the different businesses.

We also worked with funders to arrange invoice finance in the main trading company, which was then loaned to the buying company to pay a deposit to our clients for the shares.

Our clients still receive 40% of the dividends, with the remainder paid to the buying company so that the funds can be used to pay down the deferred consideration.

A successful outcome for all parties

The arrangement has worked for all parties, although we have had to smooth over a few issues along the way and advise on various changes to the SPA.

Our clients have achieved their objective of selling a majority shareholding in the transport business while retaining a 40% interest. The management team have been able to take ownership, with the structure providing a route for the deferred consideration to be paid.

With all parties still having a vested interest in the success of the company, and the clarity achieved through the agreement, we have been able to ensure that everyone is focused on a common goal.