ABL has come of age in the UK, with 2007 year-end figures showing that the industry is worth over £191bn, a 6% increase on the previous year. It is now recognised as an attractive MBO funding option because of its flexibility and revolving nature. ABL allows an MBO management team to leverage assets, be they stock, plant or machinery, from within its business to unlock capital to help the purchase.

ABL also allows an MBO management team to retain control post deal, without having to surrender some of the business to a venture capitalist or private equity house. Although these options have been a popular source of funding for many years, the fact remains that they take a percentage of the business for the funding they provide, with a representative from the institution often joining the board. In comparison ABL is much less intrusive, since it releases the value of the business’ assets to create the funding.

When funding an MBO deal, many management teams are opting for a combination facility that includes an element of ABL to create a quantum of senior debt. In addition, many private equity houses are awakening to the benefits of working with Asset Based Lenders for larger structured deals. 

If the MBO funding is provided on a revolving basis, via receivables and stock (rather than on a reducing or amortising term basis) the facility can continue to grow post acquisition, in line with the company’s sales. This reduces the strain on a company’s cash flow during the often-difficult post-deal phase.

Unfortunately even the best-made MBO plans may encounter issues, but an experienced Asset Based Lender should be able to coach and guide a client through the woods by anticipating common pitfalls and offering creative solutions. This dedication to client service is often a decisive, if intangible, element to deal success.

The team at Venture Structured Finance has extensive MBO experience and offers a bespoke service within a small portfolio - its Portfolio Managers have no more than 20 clients at any one time. This allows the team to nurture client businesses through a stressful acquisition and difficult post deal phase to further growth and expansion.

ABL in action
Jenks Sales Brokers, a leading UK sales and marketing company was originally a non-core division of US based McCormick Manufacturing. Jenks helps consumer goods companies to improve product availability and sales within the UK Grocery, Pharmacy and Convenience trade channels.

When McCormick made the decision to sell the division in 2003, Jenks’ management team saw an opportunity to buy the business. Venture Structured Finance worked quickly to provide an ABL package totalling £10m to support the MBO despite some difficult challenges. Since then, the facility has grown with the business and has supported both a strategic acquisition and a major partnership with Del Monte.

Jenks has an aggressive growth plan to reach £200 million in annual revenues within the next 12 months.  Venture will be on hand to provide support and flexibility, generating the confidence to grow the business.