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?
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?
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!