Considering a Vendor-Initiated Management Buyout (VIMBO) as an exit strategy? At fds, we specialise in guiding business owners and management teams through the intricate process of vendor-initiated management buyouts.
What is a Vendor-Initiated Management Buyout (VIMBO)?
A Vendor-Initiated Management Buyout (VIMBO) is a process in which the business owner proposes selling the company to the existing management team. This type of exit strategy ensures continuity, as the management team is already familiar with the company’s operations, culture, and goals.
In our experience, management teams often need help putting together a buyout proposal and approaching the owner. With a VIMBO, the vendor puts together a sensible and well-structured deal and approaches the management team. This can relieve the pressure on the management team to come up with an acceptable offer and let the business owner take control of the process.
Sometimes the owner keeps a minority stake and acts as a consultant to the business after the buyout. This usually makes the change of ownership easier for everyone concerned.
Owners and management teams often find a VIMBO more attractive than selling the business to a third party. As an owner, a VIMBO can provide you with significant tax advantages over, for example, extracting income through salaries and dividends. The deal must be structured carefully to ensure you receive all available tax reliefs.
VIMBOs are often financed through a combination of personal funds, external financing, and vendor loans. For example, if the funds are raised from an external investor, such as private equity, part of the payment to the owner may be deferred. This means that the management team may not need to borrow as much.
Understanding the Process of a Vendor-Initiated Management Buyout
Understanding your exit options is crucial for a successful transition. Below, we outline the key steps involved in the VIMBO process and how fds can support you every step of the way.
- Initial Consultation and Feasibility Assessment: Our journey begins with a comprehensive consultation to understand your business’s unique attributes and your personal goals of both the vendor and the management team. We assess the feasibility of an VIMBO, considering factors such as the management team’s capability, financial health, and the company’s market position.
- Valuation and Deal Structure: We will conduct a thorough valuation to determine your business’s market value, ensuring you have a clear picture of its worth. Our team will then work with you to determine the deal structure that aligns with your goals.
- Financing (external funding): A business plan may be required if the management team requires external funding. We can help the team seek relevant funders, approach them, and manage the finance deal.
- Negotiation and Agreement: We work closely with both parties and a legal partner to draft a comprehensive agreement that outlines the terms of the VIMBO, including the purchase price, ownership split, payment structure, and transition plan.
- Due Diligence and Legal Support: Unlike a trade sale, the due diligence process for a VIMBO can be limited because the management team is already familiar with the company’s culture, operations, and goals.
- Deal Completion: Following our project management of the process, we will support you through the final stages of the sale, including contract negotiations and closing procedures. Our goal is to ensure a seamless transition, allowing the vendor to exit the business confidently and the management team to take ownership and begin this next exciting phase of the business.
How fds Can Help
At fds, we pride ourselves on delivering personalised, expert support throughout the VIMBO process. We fully project manage all business exit routes to alleviate stress and allow the owners and key senior leadership team to continue operating the business.
Considering selling your business via a vendor-initiated management buyout? If you would like to learn more about how we can support you, contact us to discuss your options confidentially.
