Case Study: Precision Engineering Management Buy Out

The Challenge

A director and shareholder of a local and respected engineering business in Weymouth unfortunately fell ill and needed to exit the business. His fellow directors sought to buy back the shares he held and therefore fund his medical care, as well as bring the business into the control of the remaining directors. At the agreed share price the company had 18 months to buy all shares, however with all the finance commitments the company was under, the working capital position would be put under considerable strain. At the same time the market demand was picking up, so cashflow was needed to keep stock orders coming in. The directors began exploring management buyout finance options to facilitate the share purchase without jeopardising the company's ability to meet operational and growth demands.

Our Solution

The factory's current suite of lathes and mills was on short-term finance agreements, which had high repayments. We reviewed the value and economic life of all the machines and determined that there was a set of machines that could be refinanced to significantly reduce the company's monthly cashflow spend on finance. As no capital was needed in the business, we limited the total finance costs by only releasing enough money to settle out the existing lenders. By using this approach to support the management buyout finance strategy, we helped the company unlock working capital without adding unnecessary debt.

The Result

The company's finance repayment fell by 53% once the lend was completed. The reduction was sufficient to cover the cashflow demands of the share buyback programme and free up enough cashflow to support the advanced purchase of stock for incoming orders from clients. The share programme was completed on time, giving an unwell director the funds they needed, and the remaining directors a clean slate to build the company from.

The additional cashflow was then available in subsequent years, which ultimately helped the business to take up additional workshop spaces as they came available and buy new machinery. The company is now a thriving local manufacturer with customers across the UK and internationally.