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A management buy-out (MBO) can provide an ideal exit for business owners who want to reward their management team for their contribution to building the business. An MBO often addresses concerns over losing business identity or independence if sold to trade or private equity and can secure ongoing employment for staff. Our Transactions Team can guide the MBO team members through the process.
Typical MBO Structure
- A new company “Newco” is formed to acquire the shares in the target company
- The MBO subscribe for shares in Newco. The Vendors may retain a shareholding by rolling their target shares into Newco.
- Surplus cash can be used to part fund the MBO.
- The Vendors “loan” Newco by way of deferred consideration repaid out of future cashflow. Protections can be put in place under the loan is repaid.
- Tax advice is key both for the MBO Team and Vendors.
How we can assist you with your MBO
Approach
An MBO can either be led by the MBO team where they are given the remit and resources to seek finance to make an offer to the vendors or it can be vendor led where the business owner packages up a deal for the MBO Team to implement. We can advise on the best approach.
Feasibility
It is critical at an early stage to establish the owner’s price expectation to avoid any conflict further down the process.
Price and structure
The MBO Team should seek an independent valuation of the company and assess whether a suitable structure can be put in place which both meets the vendor’s expectation but importantly, is affordable for the business going forward.
Funding
The purchase price for an MBO often consists of existing cash, deferred consideration, management equity and sometimes retained shares by the vendor. We can help structure a transaction and
Vendor negotiations
This is a very sensitive area as you and the vendor are on the same side during your day job but on the other side of a deal negotiation. Our team understands the sensitive nature and can lead these discussions to avoid conflict.
Transaction management
An MBO can be complex process and we can manage the deal through diligence and the completion stage to ensure an efficient process.
Get in touch
For a confidential discussion on how to do an MBO, please contact Robin.
