- Corporate Finance Director - Lead Advisory
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Selling a business is often a once-in-a-lifetime event and can be stressful for owners, particularly if building that business has been a life’s work – and can impact on loyal customers and a committed workforce.
Whilst a trade sale might seem the most obvious route to exit, a management buyout (MBO) can often be a better solution.
Since the 1990s, MBOs have been a very popular way for company owners to dispose of their shareholdings on retirement or earlier exit. From the perspective of managers, an MBO is seen as attractive as it offers the opportunity for them to satisfy their entrepreneurial spirit, by acquiring a significant equity stake in the business that they work in and understand.
An MBO avoids the need for the shareholders to go to the market to locate a buyer and, accordingly the sale can be completed without the competition and market in general becoming aware of the shareholders’ intentions. It also often appeals to the owners to know that the company will largely continue in its present form.
Most management teams think that an MBO is out of the question because they do not have access to the full funding required to buy the company in which they work. The reality is that most of the money is raised from institutional investors / lenders, each of the team members only typically being required to invest a sum that shows commitment to the MBO, but is within their reach.
The principal sources of funding for a buy-out are:
Specialist advisers should be brought in on all but the simplest of MBOs. The advisers will effectively ‘project manage’ the process from start to finish. A typical MBO runs to many parts, including:
The high number of such transactions completed over the last twenty plus years is clear evidence that MBOs are an excellent way for businesses to move from one generation of ownership to the next. We have many years’ experience advising on such transactions, and would be delighted to speak with managers and business owners interested in exploring such an opportunity.
Please email the author, Darren Hurdle, or member of our corporate finance team through our contact form for assistance on any of the above issues.
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