Enterprise News

Buy-out blues

May 07 issue

Tim Levett
Tim Levett
Less than 30 per cent of management teams stay together after a buy-out, claims Tim Levett, a partner at private equity firm NVM.

The primary reason for the dissolution tends to be that managers are not up to the job of actually running a business, says Levett, who was speaking at Business XL’s MBO seminar earlier this month.

Management teams often ‘overpromise and underperform’, which can lead to a breakdown in their relationship with their backers, Levett adds. Another potentially fatal problem is a failure to adjust to the difference between being a manager and being an owner. This is reflected in a lack of awareness of funding issues, or a tendency to retain underperforming managers.

Dealing with the transition from managing to owning a business can be tough, agrees David Forrestor, who completed his own successful buy-out of software company VSI last year.

‘It was quite an anticlimax when the deal was over,’ admits Forrestor, whose own buy-out took just over a year to complete. ‘The biggest challenge was going back to our day jobs.’ Over time, though, Forrestor was able to introduce cultural changes that he says made the company ‘feel like our own business’.

The way to minimise problems, according to Levett, is to scrutinise your own motives before you embark on a buy-out. ‘If you’re doing it to perpetuate a lifestyle and you never want to leave [the business], you’re probably going to have a very bad relationship with your backers.’