A management buyout (MBO) is an ideal way of business acquisition for managers with heart for the business. They know the company well and usually have a good relationship with the shareholder(s). An MBO also has advantages for the company.
For managers in SMEs, a management buyout is often the next step in their career. They already know what the company has to offer and are also able to value the company. Statistically, therefore, the success rate of an MBO is high.
A management buyout is also an option when a business unit of a larger company is in danger of being divested. By appointing new management, the division in question can continue as an independent company. We also often see MBOs in family businesses when there is no succession.
Management buyout: the benefits
A management buyout is very interesting for both parties. For the incumbent management because it knows the company well and less due diligence is required. For the shareholders because they can sell (parts of) the company without it falling into unwanted (foreign) hands.
The advantage of an MBO is there is more continuity than when the company is acquired by an outside party, as in a management buy-in. Banks and investors will appreciate that.
In addition, management and shareholders usually come to an agreement together; after all, they know each other well. So the prognosis for a management buyout is excellent. Yet things still regularly go wrong.
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Manager is not an entrepreneur
Being a good manager does not necessarily make one a good entrepreneur. There are other capabilities involved.
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Manager does not want to pay for his own input
Of course, the value of the company is partly determined by the input of the manager who wants to take over the company. But factoring this into the final acquisition price is a fallacy and could frustrate the acquisition.
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Both parties do the negotiations themselves
Especially in a management buyout, emotions come into play. After all, the manager has a history with the company and both parties want the best possible deal. It is then a smart idea to bring in an outsider, such as a takeover lawyer. He or she will look at all the conditions.
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The negotiation collapses
Of course, this can always happen, but with a management buyout it is extra annoying. For the manager, his job is also at stake. If the parties do not come to an agreement, both go their separate ways. The manager has to find a new job.
Good preparation and sound advice can make all the difference. A takeover lawyer or accountant can help you with this. Together with you, he or she will go through all the steps required before the company is yours.
Such a process can take quite a while, so pleasant contact there is very important. Feel free to contact acquisition lawyer Ernest Loor to get acquainted.
How does a management buyout work?
An MBO does not usually proceed overnight. It is a subject that has often been up in the air for some time and has probably already been discussed. If both parties are well prepared, including mentally, the acquisition goes a lot faster than a business takeover by an external party.
Once manager and company start taking legal action, it is of great value to seek guidance from someone with specialist knowledge. That way there will be no woeful mistakes in the acquisition process.
Management buyout in 6 steps
You then go through the next steps together.
- Inventory and analysis (including confidentiality statement)
- Valuation
- Financing (through bank or investor)
- Negotiation
- Letter of intent.
- Completion
You may not initially think of a lawyer when assisting in this process. Nevertheless, a takeover lawyer can support you in all steps. Ernest Loor has as extensive experience in assisting MBOs, in legal, financial and commercial areas.
Ask for a free consultation, even if nothing is concrete yet. The first consultation is free of charge.
Help with a business acquisition
Call directly: 055 303 1950 or make an appointment.
About Ernest Loor
Ernest advises on contracts, mergers, acquisitions and (inter)national transactions, management buy-outs, reorganizations, restructurings and joint ventures, in short, everything an entrepreneur may have to deal with.
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Help with a business acquisition
Call directly: 055 303 1950 or make an appointment.
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