Management Buyouts — How to Succeed

For the uninitiated, a Management Buyout (an MBO in Corporate Finance speak) can be a daunting prospect, presenting a number of challenges to a business and its management team.

What is an MBO?

In simple terms, an MBO is the purchase of a business by its existing management team from the majority shareholders. Typically, the founders of the business will be looking to exit or step back from the business with the management team willing to take the business on and, importantly, capable of taking the business forward.

Each MBO is unique, but there are a number of common challenges which need to be considered:

- Price: Whilst the vendor will want to achieve the best price possible, it is important that the MBO team does not overpay as they will potentially be burdened with financing obligations, taking focus away from running the business.

- Culture: Especially important when taking a business on from an original founder, the culture of the business is often what makes it unique and successful. An MBO team will be fully versed in the culture, so will be aware of where both the strengths and weaknesses are.

- MBO Team Experience: The MBO team need to be sure they can take on the running of the business in all aspects. This not only includes technical knowhow, but they also need to ensure customer and supplier relationships are fully passed on and are not reliant upon the vendor.

- Track Record of Profitability and Cash Generation: An established business should have a strong financial record which will give comfort over future growth prospects. In some circumstances, an MBO team can identify a number of efficiencies which will improve an underperforming business, in which case a clear plan needs to be in place to achieve these efficiencies.

- Financing: In order to finance the transaction, the MBO team needs to be able to obtain funds and these usually come from external sources. Currently there are a number of potential finance sources, including traditional bank lending, asset based finance, vendor finance or external equity, but each of these comes with its own specific obligations which can take control away from the management team.

MBO — Once in a Lifetime?

For a management team, an MBO is often a once in a lifetime opportunity to take control of a business and build personal value. However, the experience can be challenging for all parties and once in a lifetime may sometimes mean never again!

Focus on Financing

As a management team, you will already have a strong idea of how the business runs, its financial track record and growth prospects, but raising external finance can often be the biggest challenge. It involves dealing with external financiers who, in return for their support, require controls and repayments which can place a significant burden on the business and take the focus away from day to day operations.

The Investx Solution

Investx are bringing a new offering to the MBO financing market which will help management teams achieve their MBO ambitions. Our platform will be easy to use and will link businesses with investors to deliver MBO financing quickly and efficiently, without the financial or reporting burdens which come with traditional sources of funding.

We are here to help you succeed in delivering your MBO and will be there for you after your MBO.

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