THE SPRINGBOARD MBI REPORT 2001

A SURVEY INTO THE REALITY OF MANAGEMENT BUY-INS

FROM THE CANDIDATES’ PERSPECTIVE

CONDUCTED BY MORI

COMMISSIONED BY SPRINGBOARD PLC AND DIRECTORBANK

TOPICS COVERED:

DEAL SEARCH
FINANCIAL GAIN AND EXPOSURE
ADVISERS AND FUNDERS
COMPANY PERFORMANCE AND EXIT STRATEGY

SPONSORS
Springboard plc

Springboard focuses on attracting management teams that have capital market.Springboard has backed over 20 management
demonstrable success in creating shareholder value.These teams teams who have raised over £160 million in funding following
may be seeking to undertake management buy-ins or start-ups initial support.The company was established in 1998 by an
and require funding during the search phase of an MBI or initial experienced venture capitalist and itself raised £5 million by
stages of a new venture . Springboard will provide these funds floating on AIM at start-up and a further £24 million in April
and then work with management and their advisers to raise 2000.The business is backed by some of the UK’s leading
substantial second round funding from the mainstream venture venture capital firms and institutional investors.

Contents

Sponsors 1
Introduction 2
Summary and implications 4
The sample 5
The deal search 6
Financial gain and exposure 9
Advisers and funders 11
Company performance and
exit strategy 13
Sponsors

Directorbank is a national register of senior directors available for Grant Thornton is one of the world’s leading organisations of
immediate appointments in venture capital backed companies. accounting and consulting firms providing assurance services, tax
Over 500 executives,in 30 of the UK’s leading venture capital and specialist financial advice to entrepreneurs and fast-growing
firms,have access to the confidential service, conducting upwards businesses.With 235 partners and a further 2,600 staff in over
of 100 searches a week for executive and non-executive 40 offices across the UK,the firm is ideally placed to provide
directors to join buy-in deals.Directorbank’s database includes tailored advice.
some of the most successful business people in Britain.
Grant Thornton Corporate Finance is a major provider of Lead
Directorbank was established four years ago as the MBI Register Advisory services to mid-market transactions in the £5 million to
by Jonathan Hick,who had been a Chief Executive in a £100 million range , including MBO's,IBO's, acquisitions, disposals
management buy-in and who identified the need for an industry- and MBI's. Through access to our widespread network and
backed meeting point for executives and venture capital firms. dedicated research teams,our MBI programme enables us to
The Directorbank team includes two corporate finance work proactively with selected individuals in the search process.
accountants with many years of MBO and MBI experience and Having established a target, we work closely with our candidates,
two highly experienced executive recruiters.The company is applying our extensive experience of finance raising,deal
exclusively focused on the venture capital market and has a structuring and negotiation to provide commercial practical
market leading position providing Directors for MBIs,MBOs, advice throughout the transaction.
start-up and flotation of venture capital backed businesses.

West Private Equity, the European private equity arm of

investment bank WestLB, manages a Euro 400 million fund,
which provides capital for buy-outs, buy-ins and growth
investments with a focus on established mid-sized businesses
DLA is an innovative, international law firm which has achieved across Europe operating in growth markets. It targets a broad
spectacular growth over the last few years.It is now top ten in range of industries, but uses the expertise of its senior executives
the UK and has a significant presence around the world.With a in four key industry sectors – Business Support Services;IT,
fee income last year of £176 million and over 2,200 employees, Telecommunications and Media;Industrial ‘Special Situations’;and
including 285 partners globally, more than 1200 other fee Consumer and Leisure Products and Services. West Private
earners and over 1000 support staff,the firm delivers Equity is based in London and its advisory company has offices
professional advice and business solutions to clients around in Düsseldorf.
the globe.
Since its establishment in ear ly 2000 West Private Equity has
DLA provides a comprehensive international law service through arranged the acquisition of seven companies creating three
its offices in Brussels,Hong Kong,Singapore and most major UK investment platforms with a combined enterprise value of over
cities including London,Leeds and Glasgow. DLA has an exclusive Euro 250 million:
alliance with law firms in Amsterdam,Belgium, Bergen,Barcelona, • Fox IT – a European IT and e-business services consultancy
Cologne, Copenhagen, Essen,Frankfurt, Milan,Moscow, Oslo, headquartered in the UK;
Paris, Rome, Rotterdam,Singapore and Stockholm through DLA • Coperion – the world market leader in the provision of
and Partners (D&P).In addition to this, DLA maintains strong services and engineering products to the plastics processing
relationships with firms in most major cities around the world, industry headquartered in Germany;and
including those in the USA.DLA’s Private Equity practice is • Asquith Court Schools – The UK’s largest private nursery
consistently acknowledged (both in the city and nationally) as and independent day schools group.
one of the leaders in this practice area.The group has a wealth
of experience acting for international and national private equity
institutions and management teams.

1
Introduction by Richard Rivlin

Just one management generation ago the management buy-in The average period to complete the deal was 14 months with
market was non-existent with no transactions recorded in 1980. 17 per cent spending more than two years to find the right
Today MBIs are something that many senior managers strive match.In this context it is not surprising that almost 60 per cent
towards and venture capital firms are putting huge sums of of those interviewed thought the time taken from beginning the
money behind.Over the past 15 years MBI deal values have search to completing the deal took longer than they expected.
grown by 45 per cent per annum (CMBOR). The average number of deals looked at in this period was three,
however six per cent said they seriously considered between six
The total value of MBI deals in 2000 was £14 billion and for the and eight deals before alighting on their chosen opportunity.
first six months of 2001 the value of MBIs broke records as the
highest value for any type of leveraged deal activity in a six
month period – with a value of £8.9 billion.This is clearly a “I know others who have tried to do an MBI whilst they
market that is valuable to funders and advisers. were at work.But that seems wrong to me. If you are
serious about this, you must be available to take the
Fuelling future growth is the generally held belief that the next calls.When the deal gets going,it will take 14 hours a
12-18 months will see an increase in MBI activity due to the day anyway.”
many restructurings providing management fallout as well as the
low valuations being placed on companies.
More than six out of ten successful managers dedicated
But what do we really know about this area of deal activity? themselves full time to finding their deal. Steven White, managing
There is a wealth of statistical information on the number of director of the Discovery Group that includes the famous
deals,size of deals,sector and so on, but to date , there is no Durrants Press Cuttings business,says:“I know others who have
information on the actual deal process.There are commonly held tried to do an MBI whilst they were at work.But that seems
beliefs that the MBI process is long and difficult but how long and wrong to me. If you are serious about this, you must be available
how difficult and if it is thus why do candidates do them? “I have to take the calls.When the deal gets going,it will take 14 hours a
often worked through the night with MBI candidates on deals day anyway.”
that sometimes do not even complete and wondered what is it
that is driving this individual?”says Andrew Roberts,National It is worth bearing in mind that this survey was conducted of
Head of private equity at DLA, the law firm. MBI candidates who have been successful but for every
candidate that manages to complete a deal there are many
Springboard and Directorbank,which both work with MBI others who do not manage it.This view was echoed by Jonathan
candidates regularly (Directorbank providing a matchmaking Hick,Chief Executive of Directorbank, who says:“MBI’s are a
service between potential candidates and venture capital backed prize worth chasing, but chances are that you might not get
opportunities and Springboard providing a funded MBI search there. Of the 5000 or more excellent CV’s we see in a year, we
programme in conjunction with corporate finance advisers), may find opportunities for 10 to 20 per cent but no more than
commissioned MORI to undertake the first survey of the MBI 1 per cent will actually conclude a deal.”
process from the candidates’perspective. 70 successful
candidates were interviewed on the highs and lows,the support The survey also bears out the fact that candidates are likely to
or lack of it,the financial cost and gain and advice they would be much more successful if they do not stray out of the sectors
give to individuals considering embarking on this route. they know, with 81 per cent sticking within one sector. “Relevant
sector expertise is usually a box in which I look for a tick. A
“Many of the findings confirm my observations of the MBI demonstrable track record in the sector strengthens the funding
process,” said Stephen Ross,Chief Executive of Springboard.“It is proposition.The survey interestingly shows that in nearly a fifth of
clear that pro-active people with a highly focused strategy in one cases,quality managers completed deals without a tick,” said Mat
sector that they know get results.However even those who are Bhagrath an MBI specialist from Grant Thornton.The sector
proven Chief Executives need the right support during the theme emerges again when individuals are selecting their venture
search phase.”This sentiment is confirmed by one of the capital firm with 36 per cent stating the sector knowledge as
candidates surveyed who said,“make sure you have a suppor t their reason for doing so.
structure;family, partner and friends need to be there. Strong will
and a sense of determination is needed to overcome the easy
temptation to give up when it gets too hard.”

2
Introduction

“The survey actually underpins the MBI process as I

would have envisaged it,” says Jeremy Hand, Managing
Director of West Private Equity.“The successful
individual who completes a deal is one who is
determined and focused and recognises it will take a
while.”

Reassuringly, financial gain was by no means the sole driver

pushing the managers on to pursue their MBI deals.About two
fifths (43 per cent) decided they wanted a new challenge and
had always wanted to run their own business compared with a
smaller 19 per cent who wanted to make money as the primary
reason for doing the deal.

It does seem that whilst financial gain is not necessarily the

primary motivation for doing an MBI, for those that survive the
hardship the returns are significant.The average gain that those
surveyed hoped to make on exit is £4.2 million,which puts
all the difficulties into perspective.This figure increases to £8
million for those who searched for more than two years to find
exactly the right deal and to £5 million for those who stuck to
one sector.

“The sur vey underpins our experience of the MBI process,” says
Jeremy Hand,Managing Director of West Private Equity. “The
successful individual who completes a deal is one who is
determined and focused and recognises it will take a while.”

Having commented on the venture capital industry for many

years this survey was refreshing and confirmed many of my
observations about the MBI process whilst throwing up a few
new insights.What it certainly does confirm is that there is a
need for support mechanisms throughout the whole process
from matchmaking candidates to deals, providing guidance and
funding during the search to corporate finance and legal advice
that truly understands the candidate’s perspective.

Richard Rivlin is a regular commentator on the venture capital

industry and often contributes to Real Deals. He is also the
online commercial director for Durlacher Corporation.

3
Summary and implications by MORI

For individuals who have successfully completed an MBI in the their previous employment during the search, and half of
last five years the experience is generally positive. The vast those who were searching full-time had to supplement their
majority of this audience (86 per cent) would do it again, income with interim work.If candidates could find some
especially those who conducted deals over £10 million.Four-fifths form of financial backing during this search period it would
of this audience say their deal will be financially worthwhile to allow them to focus solely on completing the deal and may
them – helping to explain their positive attitudes towards the shorten the time taken.
MBI process. 62 per cent of those who made a prediction
believe they will become millionaires on exiting the deals. • Business advisers – some candidates continue to experience
problems with their advisers and venture capitalists.Given
The CMBOR (Centre for Management Buy-out Research) the importance placed on having good advisers by those
quarterly report,which is well known within the venture capital who have been through this experience it is essential that
and corporate finance community, provides useful deal data and those putting together a deal get the best possible assistance.
shows that whilst MBI deal numbers have been declining over Help and advice in this area would still be welcomed.
recent years the average deal value is increasing considerably.The
figure for the first six months of 2001 was a record £8.9 billion. • Networking – the most common way of finding a successful
deal is through business contacts or the respondent’s own
MORI was commissioned by Springboard and Directorbank to efforts.Providing opportunities for networking will increase
undertake the first piece of research to provide an insight into the likelihood of finding a deal.
the deal process from the candidates’perspective. MBI deals
involve a range of funders and advisers,which the sponsors of • Focus on those who have dedicated themselves to the full-
the report,DLA, Grant Thornton,and West Private Equity time search – this study reveals that this group is more likely
represent. to put the deal together themselves, rather than being led by
a venture capitalist.They therefore have a greater need for
MORI interviewed 70 senior executives who had personally support and advice to help speed up the deal process and
searched for and completed an MBI deal.These executives were make the whole process more successful.
drawn from CMBOR’s database of 563 MBI deals completed
between 1996 and 2000. Of the 70 MBIs covered by the study, These findings provide an interesting and sometimes surprising
deal size data is available for 63.This information was primarily insight into the reality of conducting an MBI process from the
taken from the CMBOR database . The average size of these 63 candidates’perspective.The information provided will be valuable
deals is £8.06 million. to potential candidates as well as to the various advisers and
funders involved in these deals.
The average size of deal is below that for the 368 deals
completed since 1996 for which the CMBOR figure is £21.89 Allan Hyde, Jude Smith,MORI
million.However this figure is greatly inflated by a few very large September 2001
deals.The largest four deals alone, completed since 1996,
increase the average by over £7 million.The inclusion of just one
of these deals in the survey would have increased the average to
circa £16.5 million.

The survey generated many interesting and useful results. A

recurring theme was the support and advice required by the
candidates throughout the process. Particular emphasis was
placed on the following areas:

• Emotional support – the need for candidates to be

determined to succeed and completely committed to finding
a deal is the most widely offered piece of practical advice.
Individuals going through this process need someone to
believe in them and offer encouragement through the long
search period.Being shown examples of success, and how it Technical notes:
was achieved,might help in this regard. • 70 telephone interviews were conducted with senior executives who had
completed a successful MBI in the last five years.
• Field work was completed between 26 June 2001 and 17 August 2001.
• Financial support – on average the search period takes up • Where percentage figures in the tables do not add up to 100 per cent,this
to fourteen months, and for two-fifths the financial burden is could be due to computers rounding, multiple responses or the exclusion of
greater than they expected.Almost two-fifths remained in ‘don’t knows’.

4
The sample

The sample for this research is composed of 70 individuals who have successfully completed an MBI deal in the last five years.It is
worth bearing in mind that these are the few that actually complete a deal and for every one of these there are probably ten who
have not been successful.The group were remarkably candid about their experiences and seemed keen to share their insights for
others to learn from.Most successful MBI candidates are focused on smaller companies with less than 100 employees.Businesses with
up to 100 people working for them accounted for 58 per cent of all the candidates surveyed. Even so, nearly one in five involved
companies with more than 250 people.The track record, leadership skills and tenacity needed to complete an MBI remain
characteristics found in seasoned managers.To crib a cliché,life begins at 40 for successful MBI candidates with 86 per cent of all
respondents over this age. Less than 3 per cent were younger than 35 and all the candidates were male.The companies sur veyed
cover a wide range of industry sectors,reflecting the profile of all the MBIs conducted in the last five years.The majority (71 per cent)
are involved with manufacturing and production,which is particularly high and probably reflects the more positive activity four or five
years ago in that sector, with 17 per cent providing a service.

Sample profile

Industry sector of deal Number of employees

Manufacturing/production 71% 9 or less 1%
Providing services 17% 10-49 37%
Other 9% 50-99 20%
100-249 23%
250 or more 19%
Base:All who have successfully completed an MBI (70) Source:MORI

Two-fifths of individuals who successfully completed an MBI were Managing Directors of the last company they worked for before
conducting the deal. However, for a further fifth of respondents the MBI was their route to gaining this position. For some, conducting an
MBI is a stepping stone from the position of director to the top position.This may be because some of these individuals chose not to wait
to reach the top position in their existing organisation and instead chose to buy a smaller company that they could control.

Job titles

Pre MBI Post MBI

MD 40% MD 59%
CEO 10% CEO 16%
Chairman 9% Chairman 14%
Other director 41% Other director 11%

Base:All who have successfully completed an MBI (70) Source:MORI

The average age of those surveyed is 47 years old, however it should be remembered that this is not the age they were when
completing the deal and therefore the average age of candidates pursuing or completing a deal would have been 44.The age profile of
this group suggests that most of these individuals are making the decision to conduct an MBI in their early forties, when they have
perhaps reached as far as they can go in their previous company and are looking for a new challenge. On average, those who remained
in their previous jobs tend to be four years younger, at 44 years, than those who dedicated themselves to a full-time search (49 years).

Age of respondents

26-35 years 3% 46-50 years 24%

36-40 years 10% 51-55 years 20%
41-45 years 31% 56+ years 11%

Base:All who have successfully completed an MBI (70) Source:MORI

5
The deal search

Confirming industry expectations the deal search took the candidates an average of 14 months, and 60 per cent considered the length
of their search to be longer than they expected.However advice from one candidate was that it pays to have “Patience, caution,and
waiting out until the right one comes along,” which the figures bear out as there is a direct correlation between the length of time
searching and the level of anticipated personal financial gain.

The most frequent initial reasons given for initiating the MBI search relate to ambition,the need for a new challenge and the desire to
run and control their own company.Two-fifths mentioned Control/Challenge/Ambition first, while a desire to make money and invest
in a venture was the main driver for a further fifth.Another 20 per cent said the main trigger was that they ‘fell into it’or were made
redundant.

Some examples of the reasons cited are given below:

• I WAS ALREADY WORKING AS A MANAGING DIRECTOR IN A MULTINATIONAL SO I WANTED MY OWN COMPANY.

• I JUST WANTED TO DO IT AND FELT IT WAS RIGHT.
• MONEY!

Events or motivation triggering decision to start searching for an MBI

Control/challenge/ambition

Financial gain

Fell into it/redundancy

% First mentioned
Unhappy with previous
employment/corporate life % Any mention

Base:All who have successfully completed an MBI (70) Source:MORI

For three-fifths of respondents the time taken to search for and complete their MBI deal took longer than expected.As one might
expect,respondents who took over two years to complete their deal are more likely to say it took longer than they expected.

Time taken to complete MBI deal

Q.Was the time taken from beginning the search to the completion of the MBI?

A great deal longer than

originally expected

A little longer

About originally expected

A little less

A great deal less

Base:All who have successfully completed an MBI (70) Source:MORI

6
The deal search

One in five candidates who searched for a deal full-time covered their options by simultaneously looking for paid employment. In
addition,almost half of this group supplemented their income with interim or consultancy work.Those who were searching for more
than six months were the more likely to do so.

Twenty-seven per cent of respondents aged 51 years or over, compared with only two per cent of younger respondents,cited
redundancy as the main trigger for their search.As a result,older respondents were more likely to be looking for paid employment,
interim or consultancy work while also looking for a deal.

Only two per cent received financial support from an incubator, venture capitalist or other backer during their search.“If we repeat
this survey we would like to see the external financial support figure as a higher percentage as it is this support that Springboard was
set up to provide,” commented Stephen Ross.

Activities of those dedicated to a full-time search

Used savings and

investments to
support themselves
Supplemented
income with interim or
consultancy work

Also looked for

paid employment

Received financial suppor t

from an incubator, venture
capitalist or other backer

Base:Dedicated to full-time search (44) Source:MORI

On average each respondent considered three deals.Just over a quarter only had to look at one deal before deciding it was the right
one for them, but for 16 per cent it took over five deals before being successful.

Number of deals seriously considered

One Average:3 deals

Two

Three

Four

Five

Six

Seven

Eight

Base:All who have successfully completed an MBI (70) Source:MORI

7
The deal search

Business contacts or friends are the most common route to finding a deal which is then successfully completed.A third of the sample
used this source. Corporate finance advisers (24 per cent) and accountants (20 per cent) are also common forms of introduction.
One in ten found their deal themselves through their own resources. Interestingly, the Financial Times is mentioned,unprompted, by
three per cent.

Source of MBI deal

Q.Did you find the MBI deal you successfully completed through ...?

Your self, your business

contacts or friends

Corporate Finance adviser s

Accountants

Intermediaries

Venture capital company

Bankers

Lawyers

Financial Times

Other

None of these

Base:All who have successfully completed an MBI (70) Source:MORI

8
Financial gain and ex p o s u r e

The survey questioned successful MBI candidates on what they personally expect to gain on exit from their investment. We believe
this is the first time this area has been covered and the results are fascinating.54 of our 70 interviewees responded by quantifying the
profit they expect to make with an average across the group of £4.2 million.Whilst it is important to remember that this is a forecast
it is made on the basis of having completed the MBI and established a trading record within the target company.

This figure clearly illustrates the attractiveness of completing an MBI and is considerably higher than candidates in similar sized
companies would be remunerated for successfully managing companies with different ownership structures.As Mat Bhagrath, Partner
at Grant Thornton,points out;“I have met and wor ked with numerous candidates frustrated by the rewards they have received
compared to the shareholder value they have delivered during their corporate lives.”

Meeting expectations – Financially worthwhile

Conducting the MBI looks like it will be financially worthwhile for me.

Employment status Strongly agree

Strongly agree Remained in previous job 46%
Dedicated to full-time search 57%
Tend to agree
Value of deal
£1,000,000 or less 47%
Neither agree nor disagree
£1,000,001 – £3,000,000 43%
£3,000,001 – £10,000,000 92%
Tend to disagree £10,000,001 or more 54%

Strongly disagree

Base:All who have successfully completed an MBI (70) Source:MORI

The survey indicates that expectations of gain are highest where:

• candidates focused their search on one sector. A £4.9 million gain was expected for those who remained within their specialist
sector compared to £2.6 million for those who considered a range of sectors;
• the search period exceeded two years.Candidates who searched for two years for the right deal expect to make a gain of
£7.9 million against the £4.18 million average and there is a steady progression in gain expectation as the search period lengthens;
and
• deal size was in the range of £3-10 million with expectations of a £7.6 million gain in this range compared with an average of half
this for deals that were larger or smaller.

Personal financial gain

Length of search Value of deal

Up to 6 months (15) £2,685,000 £1,000,000 or less (11) £4,146,154
More than 6 months,up to 12 months (18) £2,819,230 £1,000,001 – £3,000,000 (17) £3,152,778
More than 12 month,up to 2 years (24) £3,762,500 £3,000,001 – £10,000,000 (12) £7,611,111
More than 2 years (12) £7,954,545 £10,000,001 or more (12) £3,610,000

Sector focus
Just one sector (46) £4,918,919
A range of sectors (24) £2,602,941 Source:MORI

9
 Financial gain and ex p o s u r e

Personal financial gain

Q.Approximately, how much do you hope to make when exiting the MBI?

£250,000 or less Average:£4,189,815

£250,001 – £500,000

£500,001 – £1,000,000

£1,000,001 – £2,000,000

£2,000,001 – £5,000,000

£5,000,001 – £10,000,000

£10,000,001 or more

Base:Gave an estimate of personal gain (54) Source:MORI

The respondents were asked how financially exposed they were by the amount of money they had personally invested.Two-fifths had
invested sufficient sums of money to make them very or fairly financially exposed.This obviously adds to the pressure placed on them
to succeed.A further 58 per cent had invested money but if they lost the money it would have little or no impact on their lives.

Financial exposure

Q.Thinking of the money you personally invested in the MBI,how financially exposed are you by the amount you have invested?

Very exposed, you could

lose everything

Fairly exposed,it would

make a real difference if it
went wrong
Only exposed a little , it
would make a small
difference if it went wrong
Not exposed at all,it’s
money you can afford to
lose

Don’t know

Base:All who have successfully completed an MBI (70) Source:MORI

10
Advisers and funders

The most common sentiment put forward by the candidates was the need to have good advisers.One candidate succinctly
summarised it:“Get the right advisers; corporate advisers are vital.” Another provided this guiding statement,“there is so much advice
to give, it’s hard.Choose your advisers very carefully.”

Generally satisfaction levels with advisers were high with over 70 per cent of respondents either very or fairly satisfied with all advice
they received.However, the lawyers shone out receiving a 57 per cent ‘very satisfied’ from all 70 of the respondents and a further
27 per cent ‘fairly satisfied’.“We do end up processing more of these deals per year than many of the other advisers or professionals.
We are so au fait with the process that we can smooth it through.In addition we have no financial interest in the deal other than our
fee and I believe this creates a sense of greater trust,” said Andrew Robert,National Head of Private Equity at DLA,the law firm.

Satisfaction with advice and support

Lawyers (70)

Corporate Finance adviser s

(53)

Accountants (61)

Venture capital companies

(50)
Very satisfied

Bankers (66)
Fairly satisfied

Base:All who have used type of adviser Source:MORI

Persistence pays, especially if you were one of the 10 per cent of successful MBI managers who visited in excess of ten venture capital
firms in search of funding.The lion’s share of candidates (76 per cent) achieved what they needed from seeing less than that figure
with 13 per cent unable to recall.

On average, the respondents had contact with five venture capital firms – although the majority (65 per cent) dealt with five or less.
Those conducting larger deals over £10 million had contact with an average of six venture capital firms, compared with only three
among those conducting deals valued at less than a million.

Number of venture capital companies contacted

1 21% 11-20 7%
2-5 44% 21 or more 3%
6-10 11% Don’t know 13%

Base:All who have successfully completed an MBI (70) Source:MORI

A reputation or belief that an investor was a specialist in a given sector accounted for the major reasoning behind the selection of any
given investor by the MBI manager. Who picks who is an oft-repeated question but personality still counts with 14 per cent putting it
down as a factor in their criteria for picking an investor. A surprisingly low 24 per cent picked their investor on the back of an existing
relationship or recommendation.

11
Advisers and funders

Twice as many respondents who remained in employment (38 per cent) as those dedicated to a full time search (18 per cent) used
previous relationships to make their selection.It is highly likely that the people who remained in employment were approached by a
venture capital firm with a deal and therefore found it easier to secure funding. Interestingly, though,this group found doing the actual
deal more difficult.

Criteria for selecting venture capital companies

Specialists in this sector 36% Personality 14%

Previous contacts/relationship 24% Only one/ones who were interested in the deal 8%
Offered the best deal 14% Recommended 8%
Overall reputation 14% Financial resources to back deal 6%
General backing and support 14% No pre-set criteria for exit 6%

Base:All using venture capital companies (50).All mentioned by 6 per cent or more. Source:MORI

Managers dedicated to full time search were happier with the level of service from their venture capital investors than those trying to
do the deal at the same time as their existing day job. Only 31 per cent of people who remained in previous employment believed
the venture capital firm managed the process swiftly and efficiently.Yet for those dedicated to full time search,that figure rose to
62 per cent.“The MBI deal process is complex and involving and requires full time focus on behalf of the candidate if the venture
capital firm is to work most efficiently on their behalf,” says Jeremy Hand of West Private Equity.

Two-thirds of venture capital firms have lived up to the respondents’expectations.However, those who experienced difficulties
securing venture capital initially or have not performed as well as planned are more critical.There is still room for improvement,as 18
per cent of all those who have used a venture capital company were critical.

Meeting expectations – Venture capital firm

My venture capital firm lived up to my expectations.

Agree
Strongly agree Ease of securing venture capital backing:
Easy 75%
Tend to agree Difficult 59%

Company’s performance:
Neither agree nor disagree
Exceeded business plan 85%
Met business plan 68%
Tend to disagree Fallen short of business plan 56%

Strongly disagree

Don’t know

Base:All who have successfully completed an MBI (70) Source:MORI

12
Company performance and exit strategy

Even the most successful MBI manager shows signs of letting optimism overcome realism in terms of writing their business plans.
Almost a quarter (24 per cent) claimed to have exceeded their business plan but 41 per cent admitted to have fallen short.
Following an MBI,the company’s financial performance will affect the ongoing relationship with the venture capital firm providing the
backing for the deal as well as the respondents’perceptions of how the deal process is handled.This is not particularly surprising,as
the venture capitalists tend to become more involved and questioning of the management’s decisions when targets are not met.

Companies’ performance

Q.Since the MBI,has your company’s performance ...?

Exceeded its business plan 24% Fallen short of its business plan 41%
Met its business plan 34% Base:All who have successfully completed an MBI (70) Source:MORI

By far the most popular option for exit is a trade sale, with 56 per cent favouring this option.Secondary buyouts are preferred by
9 per cent and 3 per cent said flotation. However, 31 per cent have no preference.

Exit strategy

Q.Currently, what is your preferred strategy for exiting your MBI deal?

Trade sale

Secondary buyout

Flotation

No preference

Don’t know

Base:All who have successfully completed an MBI (70) Source:MORI

13
Contact details
Stephen Ross,CEO, Springboard plc Tel:020 7004 2600 E-mail:s.ross@springboardplc.com
www.springboardplc.com
Jonathan Hick,CEO, Directorbank Tel:0113 297 8000 E-mail:j.hick@directorbank.com
www.directorbank.com
Andrew J Roberts,National Head of Private Equity, DLA Tel:020 7796 6313 E-mail:andrew.j.roberts@dla.com
www.dla.com
Mat Bhagrath,Partner, Grant Thornton Tel:0870 324 2525 E-mail:mat.bhagrath@gtuk.com
www.grant-thornton.co.uk
Jeremy Hand,Managing Director,West Private Equity Tel:020 7632 2480 E-mail:jeremy_hand@westpe.com
www.westpe.com

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