Roadmap to an SBO

Taking the SBO route?

Is it right for your business and what do you need to be aware of as CEO?

Whilst taking your business through a secondary buyout is one of the more common exit methods for a PE backed business, it still takes a huge amount of forethought and planning. If you make the right decisions early and choose the right investment partner, the rewards can be huge.

An SBO sometimes feels like a forced divorce. The relationship you have built over the last 3 to 5 years is gone. You need to start from scratch with the new investors. Don’t underestimate the amount of work this takes.


Is an SBO right for you?

The first step when taking the SBO road is to make sure your company has the capabilities to navigate it successfully. PEPTalks Founding Member and Quorn Foods CEO Kevin Brennan explains…

“Think about what is right for the business. Do you have a capacity to go through a second PE cycle? Typically, your business model needs to have the capacity to double your profit over 5 years for an SBO to be the right decision.”

Once you’ve clarified that your business is efficiently set up for an SBO, you then need to focus on yourself. Are you knowledgeable enough to navigate the complications that come with an SBO?

“An SBO raises challenges because you are trying to maximise the value you can get when the deal happens by talking the business up and showing the most optimistic projections.

The complication that arises is that once you have completed the deal, you then must deliver on the promises you made. If your projections were too optimistic, you are going to get off on the wrong foot with your new investors when you don’t hit your targets.

You need to think about the balance between doing right by your current investor and getting them the best possible return for the business, whilst simultaneously setting realistic expectations for how the business will perform in the next turn for your new investors.”

Mark Howling, Chairman at Redstor


Chairman of the Poweredbypie, Martin Smith sums up the best approach…

“When you’re stuck between two PE houses as a buyer and a seller, your integrity is everything.”

Selecting the Right Investor

So, you’ve decided an SBO fits in with your story. Now its vital you find the right investor; and it is never too early to start looking…

“Throughout your PE cycle you will be approached by multiple PE buyers. It’s always worth hearing them out as it’s a good opportunity to do your due diligence.”

Paul Thandi, The NEC Group CEO and PEPTalks Founding Member

Never underestimate the power you have in the selection process…

“CEOs sometimes don’t realise the amount of influence they have on an exit. Especially for a secondary deal…”

Martin Smith, Chairman at Poweredbypie

And remember that a PE house isn’t just there to fund your business. They should also provide value…

“In a secondary buyout, the deal can’t happen without you so you should ask your PE bidders to clearly set out the value they will provide to you and the business.  You can then hold them accountable after the deal.”

Adam Sullivan, CEO at Baywater Healthcare

If the money and the added value are there, then you have the start of a truly successful partnership. But you also need someone who is going to facilitate a healthy relationship with your investor…

“You need to think about your new Chairman when you’re going through an SBO. Try and get yourself into a position where you can sit down with the PE house and be part of the decision-making process.

Think very carefully about what sort of Chairman you need. What will their role be in next phase as you try to double profitability and growth?”

David Brennan, CEO of Nexus Vehicle Rental

What to Expect from your SBO

All investors are different and so is every secondary you go through. There are certain things you should always keep in mind to make for a smoother transition…

  1. “You’ve sold your business based on a plan and you need to make sure you deliver that plan.
  2. You will be used to working with your old PE house and you may assume it’s the same this time round, but every PE house operates in a different way.
  3. Remember, for your new investor post-SBO it is day zero. Because of this you’ll be expected to go back to the beginning and think about your company, your strategy, and how you’re going to build this business in this 3 to 5 year period or beyond.”

David Brennan, CEO of Nexus Vehicle Rental

It’s also always important to find out a new investor’s expectations for returns. This way you can build a ratchet into the deal to make sure you are compensated if you over-achieve.

Managing your team through an SBO

Your business is bound to change as part of the SBO process. You need to be clear on what this change looks like and the requirements you need to manage it…

Be clear about the skill sets you need to help the business scale when you’re going through an exit. This will help you make good decisions if you need to bring new people into the management team or when it comes to selecting a Chairman.

If you are going to retain your management team it’s your job to make sure they are still motivated…

“Make sure your management team are ready to climb another hill. If they see a high paying exit as the end of the journey, then you have a problem.”

Paul Thandi, The NEC Group CEO and PEPTalks Founding Member

Every new phase needs a story and a purpose

You also need to think about employees outside of your management team who aren’t set to benefit from the equity…

“Whilst the exit should always be in consideration don’t let it be your only focus. Your employees won’t be impressed by the amount of money you make at exit. They need a story and a purpose as a company”.

Paul Thandi, The NEC Group CEO and PEPTalks Founding Member