Management buyout

A management buyout (MBO) can be a highly effective mechanism to achieve a change of control. Both business owners and the management team can pursue a buyout, but there are sensitivities to navigate.

As a business owner, it can be difficult to find out if the management team would be interested in buying the company, especially if they don’t know you’re thinking about selling. As a management team, you need to find out which of your teammates might be interested in an MBO. It can also be difficult to approach the current shareholders about the possibility of this eventuality.

Both parties also need to think about structure and funding. These key elements affect the value shareholders get, when they receive their payments, the process an adviser would run, and the amount of equity a management team will own. Whatever your situation, our experts can give you a clear and detailed view of your options and guide you through the entire process to protect key stakeholders’ interests.

Funding a management buy-out

Most management teams won’t have the funding to pay for the business. There are three key funders of an MBO transaction:

1. the bank (or a debt funder) could lend money secured against the company;
2. the vendor(s) could receive some of their consideration at a later date (deferred consideration); and/or
3. a private equity fund (or investor) could be introduced to fund the difference. 

The right route for your business and management team depends on your situation and objectives. You will need to weigh up whether it’s preferable to reduce upfront cash or attract private equity. We will give you a full picture of your options, taking into consideration the growth story of the business and the value expectation of the transaction. We can also help the management team learn more about involvement with a private equity fund, demystifying the process.

Funding MBOs is always complex. Management teams become potential buyers at the same time as working alongside existing shareholders. Equally, individuals have their own circumstances to consider and need to negotiate with finance providers to secure favourable terms. We understand how to manage these conflicts and our role is to handle these negotiations in a way that keeps the deal on track.

Our MBO expertise

The private equity market funds a high proportion of successful MBOs in the UK. Our deep understanding of the industry and connections plays a key role in securing the right funding option for your MBO. We understand funder motivations, return requirements, pricing, capabilities and, crucially, which commercial areas to focus on during negotiations. We also know individual private equity managers’ positioning, approach and differentiating features and can match you to the most suitable options.

When navigating an MBO, we:

• help the management team and/or shareholders agree a deal;
• give shareholders tax advice;
• provide advice on the future financial model and business plan;
• approach the debt market and private equity market (if suitable);
• analyse relevant transaction structures;
• agree heads of terms between all relevant parties;
• manage the due diligence process; and
• provide commercial input to the legal agreements.

With our significant experience in delivering successful MBOs, we can advise you on the entire process from start to finish or give specialist advice at any point. We can also draw on our debt advisory team and private equity team to access vital connections for your MBO goals. An alternative option to an MBO is an Employee Buy-out, whereby the company is acquired by an Employee Ownership Trust (“EOT”).