Management buyouts (MBOs) occur, in essence, when a management team buys the company they already work for.
They have always been a popular way for an owner to exit their business and pass on the ownership to a management team enabling them to take control of the business.
MBOs give an emotional advantage to the current owner over other potential exit routes. It can fulfil many entrepreneurs’ aim to pass on the business they have created with the assistance of the management team who are uniquely placed to understand the business and take it on to the next level.
Staff also feel more comfortable and clients often benefit from the continuity.
The difficulties and pressures associated with running your own business are often heightened during difficult economic conditions. A number of business owners are reassessing their positions and MBOs are proving a popular option requiring serious consideration. This is particularly happening where the owner is at the autumn of his/her career.
Good management teams are, by their very nature, often younger, and are hungry for the opportunity to take ownership. A well planned MBO gives the owner a chance to prepare the management team and the business prior to an exit taking place.
As businesses have hit troubled times, we have seen instances where a sale to a management team has brought stability and guaranteed the future of a company, whilst giving the owner a chance to exit the business in a managed way.
At Pierce we have advised on a number of MBOs in recent months, including the acquisition of a historic Ribble Valley textile company by management, who have already gone on to expand the business through acquisition.
With any corporate transaction at the moment fund raising is often a problem. However, funders are often keen to back a management team of an established business as long as they have proven they have the right leadership credentials.
In principle, MBOs should be a quicker process than a sale to an unconnected party as the management team will quite often know the business well and be willing to accept reduced levels of warranties and indemnities from the vendors.
This is particularly popular in scenarios where a business needs to move relatively quickly to stabilise itself and move forward.
Pierce Corporate Finance