I assisted yesterday to an INSEAD event at the magnificent Interallié (Cercle de l'Union Interalliée). This meeting was about LBO, LBI, MBO, MBI, LMBI, BIMBO (Buy-In Management Buy-Out). Oh sorry: you didn't know that a BIMBO was also a financial operation?
Rich exchanges, strong testimonials, quality contents: this event was true to INSEAD standards. The chosen format was efficient: 4 short speeches about 4 different stories. For each of them, we had the manager who had carried the LBO and the fund manager he had worked with. That way, we got their two points of view. When then had a dinner (with a compulsory tie for each of us!) which was excellent. Talking about ties, we just had… one or two women among the fifty ones of us, which is truly increasable.
So we had speeches about:
- - Difficulties and opportunities in MBI: Michel Behar and Serge Bonnefoi/MB ENTREPRENDRE
- - Success story 1: Alain Chamla, CEO / FRANCE CHAMPIGNON, LBO with Laurent Parquet from Butler Capital Partners
- - Success story 2: Bruno Roqueplo CEO, ALGECO GROUP
- - Success story 3: Philippe Laratte, former CEO of GIBAUD SAS, LBO with Arnaud Thomas, Barclays Private Equity
- - Success story 4: Dominique Amirault, CEO Newsol Group (Soléou), LBO with Thierry Giron, Initiative & Finance.
Among different advices for those thinking about an MBI, I spot these ones:
- You can leave your sector but you will then strongly increase the risk of failure.
- Pay peculiar attention about the "culture choc" when mixing the teams.
- Your financial partner is not your enemy; be totally transparent with him but stay the only boss of the company.
- Don't never make personal debts to conclude a deal.
- Don't think that, because you successfully lead an important business unit today, you will be a good entrepreneur tomorrow.
- Before signing, make sure your family is totally 100% supportive and remember: "always lower expectations" ;-).
- Be in shape, practice a sport.
- When going through due diligences, be clear about how you will go out and/or have in mind a good build-up strategy.
Deepening the matter, I found Russell Hoyle's guide to completing a successful Management Buy-In:
1. Make sure you don't actually want a job.
2. Allow yourself at least 12 months, ideally longer.
3. Be prepared to search full-time.
4. Be patient.
5. Don't quit.
6. Be completely honest with yourself.
7. Keep detached and be prepared for failure.
8. Know when to walk away from a deal.
9. Generate your own dealflow.
10. Stick to the sector you know best.
11. Do your research.
12. Network. Network. Network.
13. Pick the right partner: deliverability is more important than equity stake.
14. Look for the angle in a deal.
15. Make sure you can deliver the numbers.
16. Know your exit.
Source : Duke Street Capital
LBO: context is getting harder
Another thing frequently said at this INSEAD night was that the global context was getting harder for project carriers:
- Company prices are going up and up every year more. See graph 1.
- The debt/ebitda ratio is touching a historical peak (I am pretty sure this is not the proper English idiom; should I say skyrocketing?). See graph 2.
Graph 1: Average Price EBITDA ratio for LBO 2004 - 2006
Source: Epsilon
Graph2 : Average debt.ebitda ratio on European buyout transactions
Source: Thomson Financial Private Equity where you can download the whole study.
Indeed, I am not too sure that the current financial crisis will turn these figures better for entrepreneurs looking for an LBO.
Emmanuel de Saint-Bon
