MBO – Friend or Foe?

The scenario:

You are the controlling shareholder of a business operated by a successful and very credible management team.  One day your Managing Director approaches you and mentions the words “Management Buy-Out”.  Should you be on your guard or should you see this as an opportunity?

The issues:

 Immediately the following concerns race through your mind:

·       Is now the right time for me to give up control of the business?

·       Will the management team hold me to ransom on price?  What happens if they leave or join a competitor?

·       At least an MBO would mean that I don’t have to market the business to my competitors

·       But if I do not market the business how can I benchmark price?

·       Will I have to leave cash in?  Maybe I can still retain some equity?

·       Don’t MBO’s usually achieve a price at least 20% below what a trade buyer would pay?

·       Will the management team become distracted from running the business during the process?

·       Are the management team backable?  Will they be able to attract funding for the transaction?

·       Will I be able to speak to potential trade buyers whilst negotiating with the MBO team?

 In reality:

Don’t worry and don’t be put off.  There are many reasons why it might make sense for a vendor to sell to its management team.  The MBO is a very common exit route and these issues can be overcome.  Exit planning is key to addressing your concerns and discussing viable exit strategies on an ongoing basis with a credible corporate finance adviser such as Bishopsgate Corporate Finance is vitally important in order to achieve the best outcome for you and your business.  A well-managed MBO may well be the ideal exit solution!