How to initiate your exit from your business in a tax efficient manner
Considering the next chapter in life and the sale of your business? But what if you don’t want to take your business out to market? What if you wish to pass the business on to the next tier of management and control the process?
A vendor initiated management buyout (“VIMBO”) is very similar to a management buy out (“MBO”) but with one important difference – the vendor is the one who initiates the process and makes the approach to management.
Key advantages of a VIMBO include:
- As the business owner you control the process on your own terms (for example, you may want to retain a stake);
- It offers a flexible approach that can be tailored to each specific case e.g. if the management team are not in a position to personally fund a material level of the consideration there are often a number of options to work around this; a self funded model, for example, is used regularly in VIMBOs so the new management team are not beholden to banks or private equity houses;
- The commercial risks of openly marketing your business are mitigated as the deal effectively takes place behind closed doors;
- A VIMBO provides an added incentive to the management team and eliminates the uncertainty of a sale to a 3rd party;
- Those in the business will understand it and appreciate its value and thus a VIMBO can be a more straightforward sell than to a 3rd party; and
- Provides the vendor with proceeds in a tax efficient manner, taking advantage of current incentives.
The management team may believe that VIMBOs are complex transactions which can be daunting, so it needs to be positioned in a straightforward manner. It is essential therefore that the vendor fully explores the option and takes professional advice before making an approach to management.
VIMBOs present a straight forward, highly flexible option for vendors to secure an exit in a highly tax efficient manner whilst presenting a fantastic opportunity to the management team – looks a win, win to me!