A management buyout (MBO), sometimes be referred to as a leveraged management buyout, can be the perfect solution for business owners who would prefer to sell their business to their management team rather than a trade buyer. The management acquires the business by borrowing money to buy out the current owner(s). The key benefits of doing so are that it causes less disruption than a trade sale process and secures the future of the company in the hands of a known management team that likely have the skills and knowledge to grow the business further.
When it comes to planning a management buyout, there are a number of things to carefully consider before rushing into anything.
When it comes to undertaking an MBO, timing is everything. There is an optimum time at which business owners should begin to consider planning their MBO. It’s important to first ensure that your business has a solid track record of high performance, profitability, and strong cash flows. Once you have all of these elements in order, you can then begin to effectively plan your MBO accordingly.
One of the key components which investors will look to for a successful MBO is a strong management team. You should consider that the team structure properly reflects the strengths of all individuals by ensuring that they are in the correct role so that they can excel at the areas they do best in. It is important to demonstrate a strong management team that is enthusiastic and committed to the growth of the business. The more that investors believe in your management team, the higher chance you have of getting them to make a sizeable investment within your business.
As a business owner, it’s only natural that you’d want to realise the maximum value when it comes to selling your life’s work. However, if you’re considering undertaking an MBO, it’s important to set realistic expectations. Remember that as a seller your price expectations must align with those of the buyer and most importantly the amount a funder is willing to provide. A good starting point to understand your businesses value is to discuss with the company’s accountants. Alternatively, it may be worthwhile getting an independent view from a specialist adviser, with corporate finance capabilities and experience of dealing with the intricacies of an MBO.
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