Tips for Navigating a Successful Management Buy Out

Tips for Navigating a Successful Management Buy Out

A management buy out, or MBO, is a process by which the executive management team of a company purchase the company from its owner – transferring ownership to the staff that have been running the business day to day. This kind of agreement can have numerous benefits for seller and buyer alike; managers can turn their experience into capital, while business owners can sell without having to risk the publication of trade secrets. 

While MBOs can be a beneficial way to acquire a business, they are not without their pitfalls. As a management team, what can you do to ensure the process takes place as smoothly as possible?

Preparation is Vital

As with any business partnership or transaction, preparation is the most valuable tool in your arsenal. As a management team, you will already have a comprehensive understanding of the business’ day-to-day running, but you will need to perform more in-depth research on the company’s structure, assets and market position. It can also be helpful to retain professional counsel ahead of your management buy out, in order to better understand the legal intricacies of the process and pre-empt certain difficulties specific to your agreement. 

You will need solicitors when it comes to the transaction itself, and drawing up of contracts, but they can also be significantly helpful in a preparatory sense. Negotiations can get complex quickly, and having appropriate counsel to navigate legal documents and requests can ensure the process continues smoothly.

Seek Professional Advice

As well as the aforementioned legal assistance, it can be wise to solicit advice from a wide range of sources throughout the management buy out process. Other business owners may have valuable insight into the differences between management and ownership, while industry leaders can speak to the state of the market in which you operate.

There are also other professional services you may need to seek to ensure a robust agreement and transition process. For example, financial specialists could audit the business on your behalf, giving you a better idea of any challenges you may face when taking on ownership. 

Seek Avenues for Funding

The purchase of any business represents a significant investment, and even with the pooling of capital it is unlikely that a management buy out team will have the necessary funds to buy the business outright. As such, it is key to research other funding opportunities at the earliest convenience.

Funding can be secured in a variety of ways. Business loans can often require assets as security – assets that a majority of MBO teams do not have – making other forms of unsecured lending a better option for many. Private investors are a useful way to raise capital, while some lending platforms offer unsecured loans or access to investor pools.