Management Buy-Outs

A Management Buy-Out (MBO) is an existing team of managers working together in order to buy a company or part of a company which they work for. 

MBOs are becoming a more frequent option for sellers as there are many advantages that come with them – but sellers also need to be aware of the disadvantages of this approach.

Main advantages

• One of the main advantages to an MBO is that the buyers already understand the strengths and weaknesses of the business better than any other buyer. This means that these transactions can often be much quicker. 
• Selling to the business’s management can also give the seller peace of mind. They know they will be selling to a group of people that they can trust to continue the business. 
• An MBO gives managers a taste of running the company and will usually be their first opportunity to do so. This can greatly increase the commitment of these managers to the business.

Disadvantages

• Although MBOs are becoming more frequent, it is often difficult for the management to raise the money that the seller is asking for the business. 
• This then often means that payment will have to be deferred or the sellers will have to look to third parties to sell the company. Finance may also be sought from banks and other lenders. They will seek certain guarantees and security for the amount that is lent to the managers, which will add extra debt to the business.
• There is a significant difference between being a manager of a company and owning it. Some managers are better equipped for the change in position than others and the MBO team will need to make sure that everyone is aware of their roles and what skills they are bringing to the table in order to avoid future conflicts.

Conclusion

There are a range of advantages and disadvantages to MBOs, just as there are in any business sale. 

When you are looking to sell or buy a business, expert advice is crucial to ensure that the deal runs smoothly and the parties are happy with the terms of the deal. 

At AWB Charlesworth Solicitors Limited our experts have dealt with a range of MBOs for both smaller and larger businesses. We are happy to discuss the process with you and help you to work out if an MBO is right for you and your business.