How to plan an MBO

Nigel GreenawayDirector - Corporate, Greenaway Scott

Leanne Thomas is Director and Head of West Wales for corporate lawfirm Greenaway Scott (part of the GS Verde Group).    In this article, Leanne looks at how to successfully plan a Management Buyout (MBO) and looks at the key considerations for both the selling and buying parties.

An MBO is a transaction where a company is acquired by some or all of its management team, usually through a new company which will have been set up for the purposes of the transaction.   A management buyout can be an attractive prospect to the seller, as well as the buying management team as they offer an opportunity for a smooth continuation of the business, which is transferred to a team of individuals who are already familiar and knowledgeable about the inner workings of the company.  

If you are considering buying, you should give thought to the following:

  1. Build your experience and position yourself to be an owner – you will need to build a rapport with both the management and the employees of the company early on to prove that you are capable of running the company. There will always be a transitional period but if you prepare early on then it is more likely to go smoothly.
  2. Get the right management team in place – start with key employees who are vital to the running of the business and ensure that they have the right operational and management skills to be a leader in the business.
  3. Produce a watertight business plan – potential leaders will need to see that you have a strong and viable business plan which sets out the future financial projections of the company.
  4. Put your money where your mouth is – consider your funding options and seek advice from corporate finance advisors or funders.
  5. Negotiate the deal – gain an understanding of what the seller wants. The seller will want to know that they are getting a good deal and will also in all likelihood have a keen interest in the long term success of the business and so choosing the right buyer will be important to the seller. If you are already the seller’s right hand man, the seller would be hard pressed to find a better candidate to run the business.

If you are considering selling:

  1. Set the right valuation – have your business valued, or have a value in mind which you would accept.
  2. Review your business and remove or reduce risks – are there any aspects of the business which need updating or rectifying, such as customer contracts, employment policies and procedures, companies house filings etc?
  3. Think about succession planning and hand over – consider whether the management team is right for the continued growth of the business. Will you completely walk away on completion of the sale or will you continue to devote some of your time to the business while the new management team finds its feet?

Despite the current crisis, MBOs remain an attractive and viable option for managers looking to acquire a business from the current owner or owners.  Funding options remain available and PE investors are actively looking for these opportunities.  Importantly, business owners looking for an exit do not have to worry about finding a third party buyer when outside interest may be at its lowest. 

To speak to Leanne Thomas, or the corporate team at Greenaway Scott about management buyout or exit strategies for your business, please contact the corporate team on 029 2009 5500 or email [email protected]

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