Management Buyout (MBO)
Ensure ongoing stability for your business
Selling a business to its existing management team can be an attractive offer for a number of reasons. The deal can usually be done quickly and privately with minimum disruption to the business while the owner also gets to pass on the business to the people who know it best, therefore, helping to secure their legacy.
If you want to ensure ongoing stability for your business, a Management Buyout (MBO) may be for you.
What is a Management Buyout?
In its simplest form, a Management Buyout involves the sale of a business by its current owner to those individuals already within the business. Essentially, all or some of the management team already employed will combine their individual resources to acquire – and take full control and ownership of the company building on their existing knowledge of its services, products, processes, and structure to help drive it to new levels of success.
Management Buyouts can occur in any industry with any size of business. They can be used to break a particular department away from the core business, to allow owners to dispose of their interest, or even to save a business from administration.
How does a Management Buyout work?
A Management Buyout is usually carried out by incorporating a new company irrespective of whether or not the business being acquired is incorporated or not. If the business being acquired is a company, the new entity becomes a holding company for shares in the acquired company, usually acquiring all the shares. If the acquired company is not incorporated, then the new company will acquire its trade and assets. Irrespective of whether the business being acquired is a company or an unincorporated business, the buyout team will take shareholdings in the new company. Sometimes the seller will retain a small shareholding by becoming a shareholder in the new company.
It is rare that a management team will have sufficient funds on their own to buy the company and external finance will be needed, so MBOs are usually funded via a combination of sources:
- Personal contribution
- Asset finance
- Bank debt
- Private equity
- Vendor loan notes
Why consider a Management Buyout?
If you’re looking to retire from a business you own, a sale to management may be preferred to a trade sale for a variety of reasons. For example, the number of potential trade buyers may be limited, or you may be nervous about approaching competitors and disclosing sensitive information or you may simply feel passionate about the company and its staff carrying on independently in safe hands. After all, the knowledge held by the management team purchasing the business will prove invaluable to an effortless succession in responsibility. What’s more, the existing staff will feel more secure in their roles, without fear of an entire new team coming in to replace them.
Selling a business can be a lengthy process, from finding a buyer, through due diligence and onto the transitional period. Selling to existing employees can be much quicker. They’re already involved and already know the ins and outs. As well as a faster and easier sale, the seller also gets peace of mind that their business is being passed onto a group they know and trust.
What makes a successful Management Buyout?
- A company with a good track record of profitability
- Good future prospects for the company
- A strong and committed management team with a good mix of skills, experience and knowledge
- A willingness to sell to the management team for a realistic price
Benefits
For you
- Easy and quick way to find buyers
- Highly confidential sale
- Secures your legacy
- Rewards loyal staff
- Business stays in friendly hands
For your company
- Smooth transition of ownership
- Reduced risk of failure going forward with business as usual
- Minimum disruption to staff, customers and suppliers during transition
- Confidential and private sale with no need to open books to competitors
- MBO businesses regularly outperform their non-MBO equivalents
For your management team
- Job security
- Opportunity to become a business owner
- Have more control
- Enjoy increased rewards
- Take the company to the next stage
How we can help
Implementing a Management Buyout takes some planning. We can guide you through the entire process, fully-funded, so you get the right result for you and your business.
Contact us now for a fully-funded options appraisal
Our fully funded Options Appraisal will explore how a Management Buyout can work for your company. It includes:
- Looking to retire from a business you own.
- Looking to retire from a family business and other family members are not interested.
- Starting a new business and want to attract top talent.
- Keen to give your employees a stake in the business to ensure long-term growth.
- Wanting to ensure your business can stay independent long-term.
