For many, owning a business is a long-held ambition. For a business owner, selling to the management team could either be the only viable option or, better still, a desirable one. A Management Buyout provides a great opportunity for the existing senior leadership team to take the business forward, especially if the existing owners want to exit and have no desire to explore other exit options.
What is a Management Buyout (MBO)?
A Management Buyout (MBO) involves the existing management team purchasing the business from the current owner. This type of exit strategy ensures continuity, as the management team is already familiar with the company’s operations, culture, and goals. MBOs are often financed through a combination of personal funds, external financing, and vendor loan.
What Are the Common Questions Regarding a Management Buyout?
Selling a business via a management buyout can raise many questions from both the management team and the business owner. It’s essential that the relationships between both parties remain intact for the sake of the company going forward. Therefore, we recommend appointing an experienced advisor to support you with the process and keep progress positive and on track.
Potential Questions from the Acquiring Management Team:
- Will the vendor consider an MBO?
- What are the vendor’s key considerations? (Price, legacy, or continuity, etc.)
- Do we have the right team structure and necessary skills to run the business?
- How will we finance the MBO?
- What are the potential risks?
- What happens after the deal is agreed?
Potential Questions from the Business Owner Selling:
- How does a Management Buyout work in practice? (What are the steps involved in an MBO)
- Can I approach my team about selling the business to them?
- How do you structure a Management Buyout?
- What is the likely timeline for an MBO?
- What are the potential risks involved in an MBO?
- Will I get the same value for my company as I would from a third-party sale?
- What if the MBO team cannot afford the buy-in price?
- When can I exit the business?
The Management Buyout Process
Every business is unique and has its own specific requirements. However, the process of a management buyout is likely to include the following activities:
- Initial Consultation and Feasibility Assessment: Our journey begins with a comprehensive consultation. We need to understand your business’s unique attributes and your personal goals of both the vendor and the MBO team. We assess the feasibility of an MBO, considering factors such as the management team’s capability, financial health, and the company’s market position.
- Valuation and Deal Structure: We will conduct a thorough valuation to determine your business’s market value, ensuring you have a clear picture of its worth. Our team will then work with you to determine the deal structure, including the quantum and payment plan.
- Financing (external funding): If the MBO team requires external funding, a business plan may be required. We can support the team in seeking relevant funders, approaching them, and managing the finance deal.
- Negotiation and Agreement: We work closely with both parties and a legal partner to draft a comprehensive agreement that outlines the terms of the MBO, including the purchase price, ownership split, payment structure, and transition plan.
- Due Diligence and Legal Support: Unlike a trade sale, the due diligence process for a VIMBO can be limited because the management team is already familiar with the company’s culture, operations, and goals.
- Deal Completion: Following on our project management of the process, we will support you through the final stages of the sale, including contract negotiations and closing procedures. Our goal is to ensure a seamless transition, allowing the vendor to confidently exit the business and the MBO team to take ownership and begin this next exciting phase of the business.
How fds Can Help
At fds, we provide expert support for management buyouts and pride ourselves on delivering a personalised service. We project manage the full process, ensuring it stays on track and that both parties are enabled to carry on with their day job.
As noted above, we can deliver a comprehensive business valuation that all parties are comfortable with, supported by current market information, and keep communications between both parties positive, professional and on track. We will aim to ensure both parties are satisfied with the process and that the management buyout is completed with minimal disruption.
If you’re considering selling your business to the management team or seeking to buy the business you work for and would like to learn more about how we can support you, contact us to discuss your options confidentially.
