Newable to launch £50m management buyout fund

Succession planning is one of the thorniest problems facing small and medium-sized businesses. Mature owner managers want to retire but their management teams do not have the cash to take over their companies.

If the management team does nothing, the business could fall into the hands of unwanted family members or be subject to an unwelcome takeover – leading to the company being subsumed and possibly significant job losses.

According to recent research there are 77,000 companies a year in the sub-£10m enterprise-value range that need to sell because either their owners want to retire or can’t continue with the business for other reasons.

Newable has already committed £25m to the Newable Capital initiative, buying five businesses itself as a test, building them up and helping their management take full ownership the businesses over a three to five-year time period.

Chris Manson, chief executive of Newable, said: “We’re specifically looking for businesses that have specialist sector expertise and the ability to export. It’s not a particularly new idea. It’s what 3i set out to do 40 years ago.”

Nick Wright, Newable’s marketing and communications director, said: “These are all solid businesses that we can support in the next stage of their journey.”

Management buyout

It used to be that a management team could organise a management buyout either through borrowing from their high-street bank or through a venture capital trust (VCT).  However, VCT legislation has changed,  stopping VCTs from investing in management buyouts, and banks are not interested in small businesses because the deal costs are uneconomic.

On top of that traditional Private Equity firms are not interested because although these are good solid businesses, they’re not capable of doubling or tripling turnover, which is what PE is looking for.

Newable Capital intends to buy target businesses outright from the founders and then allow the existing management team the option of “buying in” to the business over a period of 3-5 years so that the control eventually lies in their hands.

Founded in 1982, Newable provides business premises, advice, equity and lending to around 12,000 small and medium-sized businesses every year.

Newable is the new name of Greater London Enterprise, which itself took over the business enterprise assets of the old Greater London Council.  In the year to March 2018, Newable reported operating profit of £9.0m and a net asset value of £56.9m.