Management by Objectives and Flotation for a Publishing Company

Jul 31 2018



A London and New York SME sized publisher was seeking funds for a MBO. One of the founding shareholders was to be bought out by the co-founding shareholders through two Jersey based trusts. A corollary to the above was a subsequent reversal into an AIM listed shell company. The shape of the transaction was such that the vendors’ sale price was determined over a three year period. The proceeds were determined by an equal mixture of cash, guaranteed bank loan notes and equity in the listed company. Nine vendors of differing participation’s were involved in this process. 


The quality of the existing accounting records were not up to the challenges of the background. The group suffered from poor cash flows allied with an inefficient corporate tax structure. The business included various loss making profit centres which management were unaware of. Additionally, existing management were unfamiliar with auditors, brokers, NOMADS and solicitors of such a sizable transaction. The Corporate Governance issues when a company reaches a certain size and being in the public domain also proved to be stimulating. 


Writing a cash flow model for the years and having an auditor sign off crossed the first hurdle in raising the capital to buy out 50% from the co-founding shareholder. Aided in drafting the long form report in addition to the placing and open offer prospectus with the NOMAD. Subsequently having a full financial, legal and commercial due diligence undertaken by a “big four “ firm. This enabled the group to reverse into an AIM company. A review of the share purchase agreement was undertaken including warranties and indemnities (including tax) on behalf of the vendors in conjunction with the solicitors. 

Close monitoring of the financial records had to under taken to ensure that the earn-out targets were met and audited. 
The sale was based upon an earn-out formula which led to substantial positive returns to the vendors both in the UK and USA. Keeping the nine vendors up to speed was a challenge in itself, however this added to the team based ethos espoused by the founding shareholders. Loss making divisions were closed, leading to long term cash inflows. A transfer pricing model was introduced achieving substantial savings. This ensured transparency and was fully compliant with tax inversion legislation. Stringent credit control procedures were introduced ensuring strong positive free cash flows. 


The sale of the group led to a hugely harmonious atmosphere to the vendors. Positive cash flows over a three year period due to closing loss making titles and addressing transfer pricing issues led to savings of c. £1.2m over a three year period. The whole post transaction process brought together a tightly knit team even closer. 


"Michael from the outset brought a logical and understanding thought process to a sector known for more often than not for its creative thinking rather than the bottom line. 
He linked seamlessly with artistic staff, sales and publishing departments along with third party professional advisors and reporting accountants. 

Michael kept the participants in the sale of the group informed at all times and highlighted any financial to largely non-financial in a very user friendly dialogue. 

Whilst Michael could not significantly affect the overall sales revenues, his determination on keeping costs under control, ensured that all nine vendors achieved excellent returns. 
He was constantly in touch with department heads in ensuring that operational costs and overheads were kept under control and within budget."

Case Study: Michael O'Donnell

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