A common exit strategy when selling a business Share If you're an owner looking to sell your business or an employee thinking of buying the company you work for, you should be familiar with the term management buyout MBO. In its simplest form, an MBO involves the management team pooling resources to acquire all or part of the business they manage. Most of the time, the management team takes full control and ownership, using their expertise to grow the business. Most obviously, it allows for a smooth transition.
It takes courage to leave the relative security and comfort of a management position to face the challenges of ownership and independent accountability.
However, on reflection, most managers find that the personal satisfaction of controlling their own lbo business plan is one of the biggest rewards from a Management Buyout. Buying a lbo business plan through a Management Buyout can be a shortcut to financial success.
The risk is lower, the financing is easier to obtain, and the waiting period for a return on investment is shorter than starting a business from scratch.
But pursuing a Management Buyout is extremely demanding. The pressures on managers, their colleagues, family and friends can be severe. And this is just to complete the deal. The risks can be significant, even for a well-managed and successful business.
Managers can largely reduce the stress by understanding the lessons learned by managers and advisors who have been through the process before them.
Some of the biggest mistakes we see during Management Buyouts include: No organization can operate without a leader — someone has to have the final say and make the tough decisions. While MBO companies typically have better corporate cultures than non MBOs, they still require the presence a strong capable leader.
Getting greedy — the wrong mix of financing There are various sources of financing that may be available to complete your deal — banks, term lenders, subordinated debt providers, private equity, vendor financing — all of which have different costs and attributes.
Banks are your cheapest form of financing but they have strict rules that you need to live with while private equity is very expensive but also very patient. You may well be tempted to go for the cheapest financing and the one that allows you to keep the most equity for yourselves.
This may not be the best approach. Because the financing that you get to buy your company must also allow you to grow the company and weather the bumps along the road that you will inevitably experience.
This means financing your MBO with more equity type money and less bank debt. Obviously you need to treat all your financial partners with openness, honesty and full disclosure. Not spending enough time on the Shareholders Agreement There is probably not a more critical document for you and your managers in the Management Buyout than the Shareholders Agreement and it can also be one of the most difficult to craft properly.
How a shareholder exits the business and how, and at what value, do they sell their shares is a key topic that needs to be spelled out in the Shareholders Agreement. While many of these topics can result in fairly emotional discussions, getting these important issues on the table before you close the deal will allow you to avoid massive headaches and disruption down the road.
Not being candid and honest about key issues The best candidate for a Management Buyout is a business or business unit that can assume debt and is stagnating because management is being prevented from unlocking upside revenue opportunities by the current owners.
In order to unlock the revenue potential, the MBO plan often calls for increased investment in product development, new equipment, staff training, marketing, and in the case of "carve outs" of non-strategic assets, a new accounting system.
The management must operate as a team that can adapt to the new environment and unlock the upside revenue and accomplish other key objectives. If there are fault lines within management, they will be exposed. The sooner these issues are dealt with candidly and honestly, the greater the are chances of success of the Management Buyout.
Negotiations often get derailed. Provided that the management team is well advised, it is usually possible to ensure that management is not exposed, or "left holding the baby," if the deal fails to complete.
Not anticipating potential "deal breaker" issues Some of the surprises that arise during a Management Buyout that threaten to derail the process include: Landlords who are not willing to let the seller off the hook on leases.
Unexpected deal costs including legal fees that make it difficult to close the deal with the arranged financing. Financial backers changing the terms of their deal once they have completed their due diligence.
Managers getting cold feet and opting out of the MBO An experienced advisor will have seen most of these issues before and will take steps to address them early in the process so as to minimize their risk to the deal.Create a business plan for the company before you acquire it.
Your management team should have a plan in place to shepherd the company past the financial strains that made it a good prospect for. It's called a full leverage buyout: acquiring a company by using the assets and cashflow of that company to finance the purchase.
Although the strategy is generally unknown to most internet nerds and even general business owners: big corporations have been doing it for a long time.
The best candidate for a Management Buyout is a business (or business unit) that can assume debt and is stagnating because management is being prevented from unlocking upside revenue opportunities by the current owners.
What is a 'Buyout' A buyout is the acquisition of a controlling interest in a company – and is used synonymously with acquisition.
If the stake is bought by the firm’s management, it is known as a . on the writing of business plans, we frequently see business plans for leveraged buyouts that are improp-erly prepared. One reason may be that most available business plan guides are oriented toward start-up or early-stage financings, in which the emphasis is placed on the product or the technology of .
A buyout is the acquisition of a controlling interest in a company – and is used synonymously with acquisition.