Business Owner Series: Part 2 of 9
What is management buy-out?
Chris Broome – Chartered Financial Planner
A business management buyout (MBO) is a process in which a company’s management team acquires ownership of the business from the current owners.
This type of transaction can be a great way for a business to continue operating smoothly while also providing an opportunity for the management team to become owners and have a greater stake in the success of the company.
The management team
The MBO process typically begins with the management team identifying a desire to acquire the business. This can be prompted by a variety of factors such as a desire for more control, a belief in the potential for growth, or a desire to keep the business in the local community.
Once the decision has been made to pursue an MBO, the management team will begin to put together a proposal for the current owners. This proposal will include details about the management team’s qualifications, their plans for the business, and their financial plan for the acquisition.
Securing funding
The next step is for the management team to secure funding for the purchase. This can be done through a variety of means such as bank loans, private equity, or venture capital.
The company’s existing assets can also be pledged/used as collateral to raise some or all of the purchase price.
The management team will also need to negotiate the purchase price and terms of the sale with the current owners.
Once the funding and terms of the sale have been secured, the management team can then move forward with the transaction.
This typically involves transferring ownership of the business, transferring assets and liabilities, and updating any necessary legal documents.
The final stage
After the MBO is complete, the management team will take over as the new owners of the business. They will then be responsible for running the business and making decisions about its future direction.
Overall, a business management buyout can be a great way for a company’s management team to take control of their own destiny and have a greater stake in the success of the business. However, it is important for the management team to be well-prepared and to have a solid financial plan in place before embarking on this process.
In Summary
Overall, a business management buyout can be a great way for a company’s management team to take control of their own destiny and have a greater stake in the success of the business.
However, it is important for the management team to be well-prepared and to have a solid financial plan in place before embarking on this process.
You also need to ensure you’ve engaged with your professional advisory team well ahead of time, to ensure all financial, accounting, and legal aspects are covered.
Next steps
Please get in touch to discuss your business and the steps you can take to create long-term stability.
Next in the series – Part 3 of 9: How do EMI shares work for both employer and employee?
The next blog in the Business Owner Series looks at Enterprise Management Incentive (EMI) shares and the benefits of this type of share option scheme for both employers and employees. You can read it here.
