Knowing when the time is right

Business partners Paul Mercer and Alan Ogden are heading for the exit door. After 20 years building a successful security and electrical installations firm, they completed its sale to a management team in March.

The MBO was a long-term, planned strategy that had been put on hold. But as the business and the country slowly began to emerge from the impact of Covid they decided the time was right to hit the accelerator and make their exit.

Paul and Alan both caught the virus during the pandemic and as Paul says: “During lockdown we got a new perspective on things, it became clear there is more to life than going to work.

“The time at home gave us time to think and we came to the same conclusion, the time was right to step away and enjoy life.”

However, it’s not quite happened yet. They can still be seen every day at Leyland-headquartered Security and Electrical Installations, which trades as SEI.

Both agreed to stay on until August to ensure a smooth transition and offer advice, if asked for it. They occupy an office together, well away from the new owners and the day-to-day operation.

Alan is 64 and Paul is 61 and they have numerous interests outside work which will keep them occupied.

Deal watchers believe their decision to make an exit is likely to be repeated by a significant number of business owners, who decide to call it a day as their companies and the economy emerge from the pandemic.

SEI specialises in the installation and testing of security, data cabling and electrical systems for a wide range of industrial and commercial clients including the NHS, the Prison Service, education providers and local authorities.

The company is also well-known for its work on high security sites in the energy, utilities and defence sectors. SEI has 23 staff and works with clients nationwide and has a turnover approaching £6m. When Alan and Paul started the company, it was just the two of them with a small office in Leyland and a van to take them to sites around the country.

Directors Bradley Ogden, Ian Hearle, Callon Ogden and Sharon Clarke make up the management team that has acquired the business for an undisclosed sum. Bradley and Callon are Alan’s sons.

The route to the MBO was well-planned and the strategy began long before the pandemic, with Alan and Paul looking to put in place a management team that could take over the helm at some stage down the line.

Alan says: “We made them directors with minor shareholdings and looked to give them experience running the business. For us it was a question of whether we thought they were suitable to take it over and continue its growth.

“Our success over the last 20 years has been down to our ability to build lasting relationships with clients who have come to value our dependability and integrity. We also believe in looking after our staff.

“We wanted to pass the business on to people who embody these same values. That was important to both of us.”

Once they pressed the button, the MBO process was relatively straightforward, though both say they were surprised by the amount of work that was involved and the wider implications of the deal when it came to matters like tax.

Paul says that one of the temptations during the handover has been not diving in and making decisions for the new owners. He says: “It’s difficult but you really haven’t got to get dragged back in. We’re here to give our advice, if they want it.”

The corporate finance and tax teams at Lancashire-based MHA Moore and Smalley advised Paul and Alan on the sale of the business, providing deal structuring, valuation and advice.

Stephen Gregson, corporate finance director, says: “It’s been a pleasure to assist Paul and Alan in this transaction, enabling them to take a step back from the business and realise the rewards of two decades of hard work building a successful business.

“SEI can look to a bright future with an experienced and capable management team at the helm.”

Dean Curtis, corporate finance director at the Blackburn office of accountants and business advisors Beever and Struthers, says more business owners are looking for the exit door.

He says: “For owners who’ve been through the financial crisis of 2008 and now the global pandemic, we’re finding that many are re-evaluating their own situations and are keen to exit as part of a retirement strategy.

“For some clients the pandemic has increased the appetite to sell, as owner-managers realise the operational environment may be challenging for the next two to three years and, as a result, their plans to retire are accelerated.”

He adds: “Due to fewer trade acquirers in the market at the moment, MBOs are providing the exit opportunity that owner-managers are looking for post-Covid, while also providing an exciting opportunity for the management team.

“This can be particularly important for a family business where a company’s legacy can be of utmost importance.

“Lately we’ve seen a flurry of enquiries from our clients considering selling their business and in certain cases, an MBO or sale to an Employee Ownership Trust is an attractive option.”

Figures show that MBO activity in the region is already on the rise. North West-based Praetura Group has seen its highest quarterly lending levels having provided more than £75m of funding to SMEs in the first quarter of 2021.

Its Praetura Commercial Finance (PCF) arm, which provides asset-based lending solutions to SMEs, has enjoyed its best quarter to date, having completed transactions totalling £50.5m in Q1.

All of these were management buyouts and 60 per cent were private equity sponsored. While the last 12 months has been challenging for most businesses, it says the landscape for MBOs is changing in the North.

Stuart Bates, co-founder at Praetura Commercial Finance, says: “Ultimately, the challenge for any business owner is succession and exit, either fully or partially by cashing out.

“In the past year, we’ve seen a substantial increase in owner managers turning to an MBO or Employee Ownership Trust.

“Not every business is destined to be acquired by private equity, the vendor often sees the business as an extension of their family.

“Succession by the leadership team is often a very good solution and the vendor will continue to support during the early stages and may still have deferred loan notes.

“Quarter one of this year saw a significant increase in transactional activity, I think the continued uncertainty of possible capital gains tax changes, could further stimulate deal flow.”

One of its deals this year was the management team’s purchase of Skelmersdale-based Trelleborg Offshore UK from its Swedish listed parent company.

Trelleborg UK designs and manufactures class-leading subsea buoyancy and bend protection solutions for the oil and gas and offshore renewables sectors.

Its management saw the opportunity to refocus the company and improve performance for its key customers.

PCF offered a substantial asset-based lending facility, consisting of working capital and short to medium asset term loans.

The structure supported the share purchase consideration for the management buyout, while also providing on-going working capital headroom for the business moving forward.

Just four months from initial contact, PCF completed the MBO, with Trelleborg Offshore UK rebranding under the new ownership as CRP Subsea.

Since then, the company has been going from strength to strength under new owners Alan Burgess and John Drury.

John says: “Having rebranded and reorganised the business we are starting to see the positive effects of our plans to realign our focus on customer service and quality.”