EXCLUSIVE: Newable, the SME financier, plans to raise a £50m management buyout fund to help managers buy out owners who want to exit.
The small business financier wants to begin raising the money within a year.
Succession planning is one of the thorniest problems facing small and medium-sized businesses. Owners want to retire but their management teams do not have the cash to take over their companies.
If the management team does nothing, the business could fall into the hands of unwanted family members or be subject to an unwelcome takeover – leading to the company being subsumed and job losses.
There are 77,000 companies a year in the sub-£10m enterprise-value range that need to sell because either their owners want to retire or for other personal reasons.
Newable has already committed £25m to its Newable Capital initiative, buying five businesses itself as a test, building them up and helping their management take full ownership the businesses over a three to five-year time period.
Chris Manson, chief executive of Newable, said: “We’re specifically looking for businesses that have specialist sector expertise and the ability to export. It’s not a particularly new idea. It’s what 3i set out to do 40 years ago.”
Nick Wright, Newable’s marketing and communications director, said: “These are all solid businesses that we can support in the next stage of their journey.”
It used to be that a management team could organise a management buyout either through borrowing from their high-street bank or through a venture capital trust (VCT).
However, VCT legislation has changed stopping VCTs from investing in management buyouts and banks are not interested in small businesses because the deal costs are uneconomic.
Business participating in the trial scheme so far include an insulation -component manufacturer, a factory machinery-installation company, a medical equipment manufacturer and an aluminum-window-frame manufacturer.
Newable surveyed 263 potential companies before settling on the first five, three of which are about to complete.
Manson said: “We want to be the bridge between where you’ve got management running businesses but not owning them. Otherwise, their only other route is a trade sale, which is often not in the interest of founders and means loss of jobs.
“Private equity is not interested because although these are good solid businesses, they’re not capable of tripling turnover, which is what PE is looking for.
“It’s supporting businesses by putting them in drydock for a few years and refitting them before releasing them down the slipway again.”
Founded in 1982, Newable provides business premises, advice, equity and lending to around 12,000 small and medium-sized businesses every year.
Newable is the rebranded name of Greater London Enterprise, which itself took over the business enterprise assets of the old Greater London Council.
In the year to March 2018, Newable as a company reported operating profit of £9.0m and a net asset value of £56.9m.