Tips for a successful MBO

Acquiring or selling a company can be a complex and time-consuming process, even in a management buy out (MBO). In most MBO’s the existing management team will purchase all or part of a business, usually with the help of external financing, and take full control and ownership of the business, whilst the original owners retire or move on to new ventures. Often this is a viable option for small businesses, especially in the transfer of family businesses over generations.

With decades of commercial experience, we try to add expertise and value to your business venture, and by identifying potential challenges and risks, help you make an informed decision on whether the transaction is right for you. When it comes to a successful MBO, planning and preparation is key. Planning the business strategy, planning of future responsibilities for different functions across the business, and planning of the actual MBO deal itself.

There are no set rules, but the following are strong indicators of the likelihood of a successful MBO candidate:

• Strong cash flow
• Strength of management team
  
• Business USPs
  
• Growth prospects
  

If you are considering an MBO, take your time and reflect on the following steps:

• Co-shareholders – find the right people with the same shared values and vision.
• Define your objectives and set specific and realistic goals.
  
• Preparation – do your homework. The more research and analysis the purchasing company performs on the prospective business, the smoother the buyout.
  
• Work with a team of professionals – from legal experts to tax advisors, ensure you have a trusted team to support you in the process which can often take 3-6 months to complete.
  
• Valuation – get a fair valuation of the company and negotiate a price for the business. Then consider your options for financing the project.
  
• Exit route – careful consideration needs to be given to the proposed exit strategy for the MBO team and its investors from the very outset
  

MBO’s have the potential to be extremely successful if you go into it with your eyes wide open are prepared for the process. The sale process of an MBO is often faster than can be achieved in a trade sale, and the transition is generally much smoother when the buyers are already part of the company and have an intimate knowledge of the sector and the business itself. As experienced commercial lawyers, Ness Gallagher are here to help you agree on the terms for your MBO and give you the best chance of closing the deal quickly and carefully.