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management buy-outs / ins

A management buy-out (MBO) can be a popular choice for a business owner wanting to sell their business or perhaps phase their retirement from it over a period of time.

A buy-out means that all or part of the existing team will acquire the business, whereas a management buy-in (MBI) means that an external management team will buy into the company and take it forward. The process of buying or selling the business is the same in all other respects as a normal acquisition or disposal.

benefits of an MBO

From the owner’s point of view, it can be easier to strike a deal with the existing team because they know what they’re getting. This often means less due diligence, a simpler sales and purchase agreement with less warranties and indemnities, and so lower professional fees.

There’s also the added comfort that the owner knows what the management team is capable of. This is an important consideration if the owner agrees to some of the proceeds being deferred and paid out over time.

the pitfalls

The management team will rarely have sufficient funds to put a deal together without the vendor’s support. This often means that the owner needs to be prepared to receive payment over an extended period, sometimes accepting a lower price for the business than if it was sold to a competitor.

Also, the managers may not be risk takers, and buying a business involves risk.

The team will usually need to raise money themselves and may be asked to give personal guarantees.

These factors need to be considered carefully before making an approach to the existing managers. A failed MBO will lead to a very disillusioned and demotivated management team, so a business owner needs to be sure that the team is actually suited to taking the business forward, before making an approach.

Similarly, good managers can feel under pressure when approached to put an MBO together. Whilst it is flattering to know that the owner has confidence in the management team, it has to be right for them. The roles of director and shareholder are very different to that of a manager.

helping you to decide

We have a great deal of experience with management buy-outs across different sectors all around Staffordshire the Midlands & the UK as a whole, and can give you help and advice by:

  • attending exploratory meetings
  • suggesting possible deal structures
  • preparing forecasts and business plans
  • attending future board meetings with the new MBO team.

For a confidential chat with one of our directory call us on 01782 279615 or email us on confidential@mittenclarke.co.uk!