Buying Out A Director With £3.2m Finance Deal
Raising finance to buy out a director with Rangewell
In an award-winning media production firm, the imminent retirement of the owner and director presented an opportunity too good to ignore for other shareholders. However, with the exiting director’s shares valued at over £3 million, the buyers faced a tough financial challenge.
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Buying out a director is a form of business transaction that usually takes place when a senior director is retiring or looking to move into a new venture. Their exit allows other directors to acquire more control over the business, or for non-directors to step up into ownership. In exchange, the departing director wants to generate the maximum value they can to be fairly compensated for their role in the business.
For one Rangwell client, this role had been significant - the director in question was the founder of a media production company that had won many industry awards and was in great demand from clients across the UK and even on a global scale. This meant that the business itself held strong value – with estimates based on 4x EBITDA stating a total worth of £10m.
The two other directors wanted to buy the exiting director out and consolidate their ownership – but to do so, they’d need over £3.2m to fund the purchase. With such a high amount of capital required, they approached our team for guidance around financing the purchase.
Going beyond finance to arrange valuations and added support
The main challenge for the buyers was to raise the sum required to satisfy the departing director – but there was also an element of clarity required. In a business where all three directors had a vested interest, the valuation had only been done by an accountancy firm linked to the departing owner.
This, in turn, meant that the valuation was potentially unfairly weighted towards the exiting director. All parties were in agreement that they wanted the most supportive exit and as such, they realised they needed support from a finance expert that could not only help them arrange the loans required but also support them with an independent valuation.
Securing a fair finance deal
After discussing the situation with the buyers, Rangwell suggested a specialist valuation company that were able to offer a more verifiable figure that could then be used to put an asking price on the departing director’s shares. This came to over £3 million, which the buyers needed to raise.
While many individuals would default to traditional banks for their lending requirements, the directors had approached our team early. This meant we could help not only value the business and share price, but also to identify three lenders who specialised in buying out a director and could support the process.
From there, we mapped out the approach required to maximise the application’s chances of success. Lenders typically look for evidence that the exiting Director won’t cause a drop in customers or revenue. In this case, the retiring Director did have a loyal base of clients and there could arguably have been issues if lenders weren’t assured that said clients would remain with the company. We helped highlight the value of middle management and showcase the continuity plan for the business that accounted for how to retain those clients.
The exiting director had two main concerns: receiving a fair price for their efforts but also seeing the business continue operating successfully in the future. To achieve this, they agreed to a partially staged payment plan where they received 75% up front and the remaining 25% over the following year to ensure there’d be no disruption to the business.
The buyers received a full £3.2m credit facility to fund the purchase, offered over 5 years with a fixed interest rate of 8.9%.
Whether you’re a buyer looking to purchase a business from an exiting director, or you’re an exiting owner/director looking to sell to other members of your team, Rangewell can help you arrange a director’s buyout loan – but also offer guidance and support throughout the process with added benefits like independent valuations or legal advice.