If you are a business owner looking to exit your business, you have likely thought about potential exit routes and how you’ll realise your investment, but you may be unsure about which approach is best to help you achieve your goals. In our latest blog, we explore a management buyout (MBO) as a potential exit strategy, and the factors which could influence whether this route is right for you and your business.
What is an MBO?
An MBO involves the existing management team acquiring ownership from the current shareholders, usually the founder, often with the assistance of external financing sources such as bank debt or private equity. This approach allows the management team to take control of the business, leveraging their familiarity with operations and strategic vision to drive growth and profitability.
There are various factors which would influence whether an MBO is viable for your business, including:
The management team
The strength, cohesion and completion of the management team is key to determining whether an MBO could be feasible. A capable management team, already running the business, with a deep understanding of the company’s operations, industry dynamics and market positioning places them as ideal candidates to acquire and lead the business moving forward.
Reliance on vendor
The level of reliance on the vendor (or current owners) can affect the feasibility of an MBO. Do they play a lead role in day-to-day operations, or can the business function independently, without their input? If it’s the latter, an MBO way be well-suited, however, if the vendor’s expertise or relationships are integral to the company’s success, a vendor should consider ‘managing themselves’ out of the business before reconsidering an MBO as an option. If this is not possible, then alternative exit strategies should be considered.
Funding structure and availability
A critical aspect of an MBO is the extent to which a vendor’s value aspiration can be met through an appropriate funding structure, as this determines the financial feasibility of the transaction. The management team would likely seek financing from a combination of sources e.g. equity contributions, debt or even vendor financing (by way of deferred consideration), the availability of which depends on various factors which can be explored during the feasibility phase.
Ultimately, an MBO offers continuity, alignment of interests, autonomy for the management team and confidentiality, whereas alternatives such as a trade sale may provide access to a broader pool of potential buyers, higher valuations, and strategic synergies. Business owners must carefully evaluate these factors alongside their long-term objectives to determine the most suitable option for their business. It is important to speak to an experienced corporate finance adviser to seek advice on which financial transaction would be most appropriate to fit your requirements – providing tailored advice based on your specific circumstances, to ultimately help you achieve more.
Get in touch
If you are considering selling your business, speak to our corporate finance advisers at PM+M who will work with you to find the best exit strategy to help you realise your investment.
PM+M is also a full-service firm, offering audit, accounts, cloud accounting, financial planning, payroll, and tax services. This means we collaborate to support our clients, offering a fully joined-up approach, all under one roof.
If you would like to arrange a confidential conversation at a time to suit, including evenings or weekends, contact corporate finance manager Ryan Bilsborough by clicking the button below.
