A management buyout is an excellent solution for business owners who don’t have a succession plan in place. You might prefer the incumbent management team to take over operations instead of selling to another acquirer. The buyer and seller must be willing to partake in a management buyout for the process to work.
So, what exactly is an MBO?
A management buyout (MBO) is when a business is purchased by those already within the company. The current management team may combine their resources to buy the business from the owner. The team will take full control of the company’s products, processes, and structure. The management team can keep the business running with minimal disruption, and the existing staff can feel secure in their roles.
Is your business prepared for an MBO?
Your company needs to have good future prospects, profitability, and a committed management team. It needs to be the right time and place for an MBO. The management team needs to be passionate about running the company and driving it towards success. The owner needs to be ready to sell and comfortable with the management team taking over.
First up, the business needs a fair valuation by third-party experts, potential buyers, and owners. The current owner should get tax advice to ensure the business meets all necessary requirements.
Once the valuation is complete, the management team needs to find the funding to buy the business. The team rarely has enough funding to purchase the business outright. They will need to consider debt only and debt and equity options. In some cases, the management team may bring in a private equity investor to secure funding. The investor may then have a stake in the management board. Alternatively, the team could go for bank loans and asset finance to secure funding.
A management buyout comes with a lot of risks. You should consider why the seller wants to get out of the company. The market might be changing, and there is no longer a demand for the business. Or, there may be an internal issue with the business, which makes it tricky to take over. Assess all of the risks and consider how you will manage them.
A management buyout can make or break a company. You need to decide the best plan of action for the business and management team.