Thinking of Selling Your Company
to your Management Team?
The Pros and Cons of Management Buy-Outs
Exiting your business by means of a Management Buy-Out is always a good option to consider for SME business owners.
Is selling your company to your management team the right option for you? Here is a brief list of the Pros and Cons:
Pros:
- No need to go and find an external buyer – whether Trade or Private Equity
- Reward the management team by providing a route to business ownership
- Achieve a full value for your company based on an independent business valuation
Cons:
- You need to have a capable management team in place if you are in charge of day-to-day operations
- The management needs to be able and willing to raise funds and take on ownership responsibilty
- Proceeds from a sale are often largely dependent on future
earnings
What is required of your management team for a successful MBO?
Many SME businesses (in the £1m to £15m revenue bracket) are
dependent to a great extent on the business owner for leadership, client & supplier relationships and strategy – With professional or skills based service firms, qualified responsibility for projects delivered often lies with the owners/partners of the firm too.
Identifying succession for these key roles is very important when
deciding whether to go down the route of an MBO and which members of the management team to approach. Skillsets and mindsets of the management will be a determining factor in the success of the deal.
As well as the appropriate experience and skillsets, for a successful MBO, each member of the management team must:
- Be willing to move from salaried employment to taking on
ownership responsibility - Be able to raise an amount of their own cash to put into the deal, even if a relatively small proportion of the overall deal value
- Have the support and backing of their partner and/or family
Ideally, the management team will have been working on setting up the company for significant growth over a number of years, and so will be ambitious to see this through and to participate in the rewards.
Download Comparison chart for selling to a trade buyer or third party investor, MBO or EOT.
Process for selling to your management team – What is involved?
When selling your business via means of an MBO, the key steps are
generally as follows:
- Make an assessment of your management team’s capability and willingness to take on company ownership
- Commission Hornblower to do an independent valuation of the company and take our advice on the potential deal structures and funding requirements
- Approach the management team to explain your plans to exit, what an MBO will involve, and ask them to consider whether they wish to take on the ownership of the company.
- Agree the heads of terms of the deal, arrange funding, provide any information required by the lenders for due diligence, have solicitors draw up contracts and shareholder agreements, and complete the deal.
Deals are often structured with an upfront payment on completion followed by deferred payments funded by the company’s cash reserves, asset finance if necessary and ongoing cashflow.
Who to talk to first and why Hornblower
In deciding whether selling to your management team via an MBO structured deal is right for your business, we believe it is essential to look at all the options. Our expertise is identifying the right exit solution for you.
Over recent years, Hornblower has sold over 70 businesses. Indeed, we sell over 80% of our sale assignments. So we know what businesses are sold for in real life and who to? We can tell whether a business is well placed for a trade sale or whether it is better suited for
management or employee take-over.
We also know how to maximise the value of your exit at the same time as leaving a legacy and job security for the management team and
employees who have helped you build your business over the years.
We are able therefore to advise on how you exit your business whether by selling to a Trade Buyer or Private Equity, Management Buy-Out (MBO) or by selling to an Employee Ownership Trust (EOT). As a result, we can devise the most appropriate strategy for you and your company from the outset.
Business valuations for Management Buy-Out deals
We are always happy to work alongside your professional advisors –
accountants, wealth management advisors, commercial lawyers, or
commercial finance brokers
If you are a professional advisor assisting your client with a Management Buy-out, we would be delighted to offer our Independent Business Valuation service.
Next Steps: Find out whether a Management Buy-Out is right for your company?
Complete the enquiry form.
We will contact you within 2 hours to arrange a time to review your
situation – free and without obligation and we would be happy to sign
a confidentiality agreement.
