Reaping the rewards of an MBO

By Lancashire Business View

02 Aug 2017

In association with

For many managers, a management buyout is their first venture as an entrepreneur. It takes courage to leave the comfort and security of a management position to face the challenges of ownership.

By Pauline Rigby, head of corporate and restructuring at Forbes.

However, despite this most managers find the personal satisfaction of controlling their own destiny one of the biggest rewards of an MBO.

Buying a company through an MBO can be a shortcut to financial success. The risk is lower, the financing is easier to obtain and the waiting period for a return on investment is shorter than starting the business from scratch.

It is often done through a newly incorporated holding company that has been set up by the management.

One of the major issues concerning management teams is how they are going to afford to acquire an established business.

It is important to note the MBO team are only usually required to input a relatively small portion of the overall consideration to show their commitment to the deal.

The remaining consideration can comprise:

Bank debt: This is likely to form the bulk of the finance and will usually be secured over the assets of the newco and the company itself. This is normally one of the cheapest forms of financing but will require repaying prior to any other financial provider and will have strict terms attached. Depending on the sums lent the bank will almost certainly require individual members of the MBO team to provide personal guarantees and security over their personal assets. Deferred Consideration: Effectively where the exiting shareholders allow a proportion of the consideration to be paid to them in instalments over time. Venture Capital (VC): A VC will assist companies by injecting cash in return for an equity stake. The VC usually has a mid-term plan of typically three to five years where they aim to increase the value of their stake and then exit through a number of routes. They will usually appoint a member of their team to the board of directors but they do not take any direct part in the day to day running. Whichever funding combination is used, it will be important for the MBO team to prepare a business plan as it will be this that attracts the investors in the first instance.

In essence the process of an MBO is the same as with the sale of any business. Typically though you would expect the due diligence and warranties to be a lot lighter as the buyers will know the business already. However, this will depend on whether any of the funders require a detailed due diligence.

The management team should consider having a shareholders agreement. This is probably one of the most critical documents in an MBO and one of the most difficult to draft. A well drafted shareholders agreement has to address all those difficult ‘what if’ questions such as what happens is someone gets sick, gets fired or dies. How a shareholder exits the business, and how and at what value do they sell their shares, needs to be set out in the agreement.

Latest news

1

Three weekly domestic waste collection considered in plans Waste recycling Blackpool

Three weekly domestic waste collection considered in plans

01 Jul 2025

2

Graham Engineering confirms acquisition to a2e Industries Graham Engineering

Graham Engineering confirms acquisition to a2e Industries

01 Jul 2025

3

Training 2000 celebrate 'Good' rating by Ofsted Training 2000

Training 2000 celebrate 'Good' rating by Ofsted

01 Jul 2025

4

Fox Group acquires J Fisher and Sons Colin Fisher, Paul Fox CEO and Gary Fisher.

Fox Group acquires J Fisher and Sons

01 Jul 2025

5

Beever and Struthers strengthen leadership team with new partners Dean Curtis and Joe Diston

Beever and Struthers strengthen leadership team with new partners

01 Jul 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV123 July/August Launch Event
Lancashire Business View magazine launch
Networking
16 Jul 2025

LBV123 July/August Launch Event

Burnley

08:30 - 10:30

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

Chamber Breakfast Networking – July
Chamber Logo1.png.png
LBV Hub Networking
02 Jul 2025 - 02 Jul 2025

Chamber Breakfast Networking – July

St John's Hospice, Slyne Road, Lancaster, LA2 6ST

08:00 - 10:00

The Marketing Metrics that Matter – July 4
LBV Hub Seminars
04 Jul 2025 - 04 Jul 2025

The Marketing Metrics that Matter – July 4

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

08:30 - 11:00

Tri-Site Survey Equipment Showcase
unnamed (2).jpg.jpg
LBV Hub Seminars
09 Jul 2025 - 09 Jul 2025

Tri-Site Survey Equipment Showcase

Crow Wood Hotel, Burnley, BB12 0RT

09:30 - 16:00

Chamber Summer BBQ
LBV Hub Social
17 Jul 2025 - 17 Jul 2025

Chamber Summer BBQ

The Borough, Dalton Square, Lancaster, LA1 1PP

17:30 - 20:00

Preston Tech Connection: Web3 is Dead. Or is It?
July Longer Banner.jpg.jpg
LBV Hub Networking
29 Jul 2025 - 29 Jul 2025

Preston Tech Connection: Web3 is Dead. Or is It?

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 19:30

Preston Freelancer Meet-Up: July
Longer July Banner.jpg.jpg
LBV Hub Networking
31 Jul 2025 - 31 Jul 2025

Preston Freelancer Meet-Up: July

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Cumbria Business Expo 2025
https---cdn.evbuc.com-images-880461633-4862066883-1-original.20241022-110415.jpeg.jpg
LBV Hub Exhibitions
19 Sep 2025 - 19 Sep 2025

Cumbria Business Expo 2025

Carlisle Racecourse, Carlisle, CA2 4TS

09:00 - 15:00

North West Business Expo 2025
https---cdn.evbuc.com-images-880456273-4862066883-1-original.20241022-105445.jpeg.jpg
LBV Hub Exhibitions
24 Oct 2025 - 24 Oct 2025

North West Business Expo 2025

Bolton Stadium Hotel, Bolton, BL6 6SF

09:00 - 15:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV122 Online Graphic
Subscribe now

Weekly news bulletin