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Nothing ventured, nothing gained


Management buyouts have become something of a trend among civil engineering consultants recently. This month in-house teams took control at both Robert Benaim & Associates and Parkman, and just before Christmas Symonds announced that its management had bought the firm back from the Vivendi conglomerate.

A desire to preserve or regain independence has influenced all three deals. But whether this much-valued independence is retained remains to be seen.

Much could depend on how the deals are funded.

The Parkman deal is an interesting case. Around £5M of its MBO cash came from Gresham Investment Trust, a venture capital group. MBOs are often part funded by venture capitalists and indeed many banks putting money into these deals insist on their involvement.

But venture capitalists can be demanding investors. They don't lend money, but buy shares instead, expecting to make a return by sharing in future profits and in the growth in the value of the business. And if things go badly, they can sack managers or force them to change strategy. Alternatively they can sell out to other investors after making a short-term profit, possibly plunging a firm into a period of uncertainty.

Parkman chairman Richard Archer, a former senior partner at management consultant KPMG, is a robust defender of venture capital. He says that Gresham Trust has no intention of meddling with the running of the firm.

Archer is understandably bullish about the firm's prospects and strategy, and so does not envisage the need for his investors to intervene. But he accepts that ultimately if Parkman fails to deliver, Gresham could sack his management team.

Others are more wary. Symonds chief executive Chris Booy went to great lengths to find banks which were prepared to fund his MBO without the help of venture capital. He says that English banks in particular like venture capitalists because they are more proactive, often saving them the trouble of getting involved in unpleasant tasks like the sacking of under-performing managers if things start to go wrong.

The Benaim team was similarly cautious. Rober t Benaim sold his firm, Rober t Benaim & Associates to its management through a desire to preserve the status quo. Consequently the Benaim MBO team is a younger generation of engineers with similar values to his own. They want to be innovative engineers first and members of a growth driven, expanding business second.

To stay true to this, the Benaim directors believed it was vital that they used their own money to fund the entire deal, rather than involve venture capitalists.

The Benaim team is lucky. Theirs is a relatively small firm, with a fee income of around £7.5M. Although the sale price was kept secret, it is unlikely that directors had to be fabulously wealthy to fund the entire deal.

Symonds and Parkman are bigger, so their managers had to use outside cash.

For many consultants MBOs must be the way forward as they seek to retain their independence in the face of changing circumstance. But choosing the right outside investors is vitally important. If outside investors are involved, that independence may well come at a price.

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