What is a Management Buy Out (MBO)?
A Management Buy Out (MBO) is a process where the managers of a company team up to acquire the ownership of the company they work for. This can be done for various reasons, such as:
- To gain more control and autonomy over the business strategy and operations
- To reward the managers for their contribution and performance
- To prevent a hostile takeover or a sale to a competitor
- To take advantage of an opportunity to buy the business that management know
- To facilitate the exit or retirement of the existing owners
An MBO can be a win-win situation for both the managers and the owners, as the managers get to own and run the business they know well, and the owners get to sell the business to a trusted and motivated buyer.
How to prepare for a MBO?
An MBO is a complex and lengthy process that requires careful planning and preparation. The managers should consider the following steps before embarking on a MBO:
- Evaluate the feasibility and attractiveness of the deal. The MBO team should assess the financial performance and potential of the business, the market conditions and opportunities, the valuation and affordability of the deal, and the compatibility and commitment of the management team.
- Approach the seller and express an interest in a transaction. The MBO team should approach the existing owners and express their interest in buying the business, preferably with a non-binding indicative offer.
- Conduct due diligence and negotiate the deal. The MBO team should undertake a suitable due diligence process on the business, covering the financial, operational, legal, and commercial aspects.
- Negotiate the price and terms of the deal with the seller, and agree on a heads of terms or a letter of intent.
- Secure the financing and finalise the deal. The MBO team should secure the financing for the deal from appropriate sources, and obtain the necessary approvals and consents from the providers of finance where applicable.
- Implement a post-deal strategy and plan. The MBO team should implement a post-deal strategy and plan to ensure a smooth transition to the new ownership and to put their own vision into action for the future operation of the business.
Armstrong Watson can assist MBO teams to;
- Identify and secure the necessary financing for the deal
- Negotiating a fair and realistic valuation and terms of the deal
- Managing the legal, regulatory, and tax implications of the transaction
How to finance a MBO?
Article: Funding options for management buyouts
An MBO can be a rewarding and fulfilling experience for the managers, as they get to own and lead the business they are passionate about. However, a MBO also requires a lot of hard work, dedication, and resilience, as the managers face many challenges and risks along the way. Therefore, the managers should be well prepared and well advised before pursuing a MBO.
Contact our Corporate Finance team on 0808 144 5575 to discuss how we can help you.