Top ten challenges of management buyouts

Shorts Chartered Accountants advise on what to consider in a management buyout.

A management buyout might seem like a dream come true to many senior management teams as well as for the incumbent owner, however without the correct advice, support and planning it can become a nightmare.

Many management teams would relish the prospect of owning the business they work in. This gives them the freedom to pursue an independent strategy and reap the full rewards of ownership.  Similarly, many business owners find the idea of selling to their management team appealing. As an alternative to a trade sale it has some distinct advantages, for example there is no need to disclose confidential information to competitors and it is an opportunity to reward the managers who have helped to build it. 

However, an MBO doesn’t come without its challenges:

Management Buyouts – the Top 10 challenges

1) Management do not have the cash to buy the business! The cash required from management is generally relatively small – 1 times salary is a general rule of thumb. The rest comes from external funders.

2) Management Team – complete management team with the right mix of skills and experience? If not, this may not be a disaster - timely recruitment could fill those skills gaps.

3) Approaching the owners – how do you approach your boss? Is there a risk of appearing disloyal? Will an approach effect your future career prospects?

4) Risk appetite – gaining the benefits of ownership may sound fantastic, but it does come with additional risks and responsibilities – this may not be for everyone in the management team.

5) Funding – There are a range of funding options, from asset-based lending to private equity…and it is likely that only some of these will be available or appropriate to your situation. 

6) Price negotiations - how much is the business worth and how do the parties reach agreement? 

7) Structuring the deal – management don’t want to buy the business only for it to be immediately under financial pressure. 

8) Legal process – An MBO is not a straightforward transaction and formal legal documents need to be agreed with negotiations between the two parties. This is often a lengthy process.

9) Project Management – An MBO transaction involves several funders and advisors as well as the owners and the management team – managing all these parties and keeping the whole process on track is quite a challenge

10) Focussing on the day job – whether you are an owner selling or a management team buying an MBO process is time consuming and can be a huge distraction. Meanwhile, there is a business to run….

FREE BREAKFAST SEMINAR

A sale to management is often a more realistic prospect than people think. Why not find out whether an MBO will work for you?   This seminar has expert corporate finance, banking, legal and recruitment speakers who will help to de-mystify the MBO process. They will cover how an MBO works, the 5 main funding considerations, how to easily and effectively fill skills gaps in your management team and how good legal advice can protect both the owners and the management team.

Thursday 26 April 2018
8.00 – 10.00 am
AMP Technology Park | Brunel Way | Catcliffe | S60 5WG
Speakers include: Andy Ryder, Corporate Finance Partner at Shorts, Nik Pratap, Partner at Brewster Pratap, Emma Draper, Director at Brewster Pratap.

shorts.uk.com

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