The situation
Overleveraged MBOs kill businesses in Year 1. Under-leveraged MBOs mean management put in more than they need to. The right structure is the one that leaves working capital intact post-completion.
How we approach it
We build the debt stack piece-by-piece: property mortgage on any freehold, asset finance on machinery, cashflow term loan on the balance, working capital facilities post-completion. Mezzanine and vendor deferral bridge the equity gap.
What that looks like in practice
- Senior debt against property, plant and cashflow
- Vendor loan / deferred consideration often bridges 15-25%
- Mezzanine finance for the gap between senior and equity
- Management equity typically 20-40% of enterprise value
- Post-completion working capital modelled from day one
Typical timeline
- Weeks 1-4Combined model, debt stack designed, lender introductions.
- Weeks 4-12Due diligence, credit committee, offers.
- Weeks 12-20Legals, simultaneous completion.
Common questions
How much do I need to put in personally?
Usually 5-15% of EV — enough to be materially aligned but not enough to crush you personally. Vendor and lender both want skin in the game.
What is mezzanine and do I need it?
Subordinated debt sitting between senior and equity — expensive but flexible. Needed where senior lenders won't stretch high enough on their own.
Vendor deferral — how common?
Very — 15-30% of consideration deferred over 2-3 years is normal. Aligns the vendor with a smooth handover.
Send the target accounts and offer terms
We'll design a debt stack that completes the deal without crushing Year 1.