Top tips for a successful MBO

Agreeing and setting a realistic valuation is an important aspect and typically requires outside advice.

An external adviser can help the parties negotiate the sale and achieve a fair valuation and agree a sensible payment structure.

There are various sources of financing available such as a bank loan or private equity. Each has different costs, requirements and benefits and it is important to choose the right funding for the transaction and the future of the business.

Private equity (PE) firms usually remain invested for three to five years, while also playing a supportive role. Unlike the banks, PE firms will work with the management team, providing additional expertise and support - this can prove pivotal in the success of the business.

The management team should have clarity in structure, roles and responsibilities. Even if each member is investing the same amount, there must be clear leadership.

One member should assume the role of chief executive and take the lead in shaping and articulating the business’s growth strategy, to help convince potential investors that the team has the requisite skills and a clear vision for the business.

A crucial, and often overlooked, aspect is putting in place a comprehensive shareholders’ agreement (private). This will address a number of key points that members may not want to include in the articles (public).

Giving proper thought to the agreement at the outset will minimise potential areas of conflict and tension within the management team and helps ensure that the focus can be squarely on driving the business forward.

Given its importance and complexity, it is essential that legal advice is taken and the shareholders’ agreement is professionally drafted.

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