Guide to management buy-outs


Do you want to control your own destiny?
Do you want to own the business you’ve been running for someone else?
Do you want to make a life changing amount of money?

If the answer to any of these questions is yes, then you should be considering a Management Buy-Out and starting out on the MBO Journey.

This quick guide takes you through the process and the key stages of an MBO. If you want to know more please contact Skye Corporate Finance

Overview of the MBO Process 

MBOs_flowChart

 

A look at each of the stages:

 

FEASIBILITY

MBOs are not to be taken lightly. There’s risk involved, heavy commitment and hard work but the rewards can make it all worthwhile.  But before getting in too deep, take time to assess the feasibility.

Is there a deal?  Have you approached the owner of the business and is s/he receptive to the MBO? Has the owner indicated that the business may be put up for sale or has he already done so? Is the owner coming up to or contemplating retirement? Is the business you work in viewed to be “non-core” to the owner. If the answer is yes to any of these then you are on fertile ground.

Management Team – This is a MANAGEMENT buy-out. Without a management team there is no deal.  There are no hard and fast rules about the size and structure of the team. It could be one person it could be five.  A management team that fits the bill for the business in question is what is required.

Business Case.  If there is a prospect of a deal and the management team is in place then an overview business case can be created quite quickly to assess whether a financial deal can be structured which is likely to satisfy the aspirations of the current business owner.

 

PLANNING AND FUNDING

The thing about MBOs is that the management team are never going to have enough money to buy the business.  Finance will have to be raised and this is a process in itself.

Business Plan. This will be the cornerstone of your funding proposal. The plan will describe the business, profile the team and present the opportunity. Detailed financial analysis is a critical part of this.  But don’t get carried away. No-one wants to wade through a fifty page monster. Let’s keep it short, sharp and to the point.

Presentation. At some stage you will have to stand in front of your prospective funder and present your opportunity.  This was once described as “the sales pitch of your life”. But don’t worry, you know more about your business, your market and your opportunity than a funder ever will.  With a bit of practice and some thought you’ll do yourself justice.

Funder Selection.  Expect to get more than one funding offer and from different sources.  Selecting the right partner is more than just about who is the cheapest. Who can you work with and whose offer dovetails in best with other types of funding you might need?

 

FORMAL PROCESS

You may have been working on your MBO for two or three months by now. You’ve struck the deal with the business owner and you’ve got your funding package in place. Its time to grit your teeth for the formal process and the drive to completion.

Due Diligence - Due Diligence is a review of the company’s finances and your business plan, undertaken by an independent firm of accountants supported by other experts.  Your funders will want this to make sure that everything is in order but its for your benefit as well as there will be aspects of the company that you will have had no involvment in and if there are issues hidden away you’ll want to find out.

Legals – Everything that you have agreed with the business owner, your funders and between the team has to be formalised in legal documentation. Expect a lot of paperwork. It’s not thrilling but its vitally important. Time to burn the midnight oil and work with a lawyer you feel like you can trust.

Completion – The culmination of all that effort.  A completion meeting will take place at the Lawyers’ office.  If your lucky it’ll still be daylight when you finally sign up.  Time for a glass of champagne and the realisation that you own the business!!

 

HARD WORK

You have come through the MBO process successfully. Well done.

Post Deal
You will have leant more about your business, finance and the legal process than you could ever have imagined. And, having stretched yourself, you’ll have a good idea about your own and the teams’ capability. You’ll be in good shape to take the business on to the next stage as an OWNER manager.