What is a Management Buy-Out and what is the process?

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


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 Ian.

Ian McDonald

Ian McDonald

I am a Director in the Corporate Finance team covering our Aberdeen & Dundee offices. I have been a finance professional of over 15 years and joined Henderson Loggie in September 2018, coming from an…