Management Buy Outs
What is a Management Buy Out? In its simplest form, a management buyout (MBO) involves the management team of a company buying the company they manage.
An MBO is also a way for a larger company to sell a division that is no longer part of its core business.
Our Commercial Solicitors in Wales have been advising on MBOs for over 20 years.
How does an MBO come about?
An ambitious management team may approach the current owners with a proposal outlining:
- why they want to buy the business
- what they think it is worth
- how they would fund the purchase
- The aim of a management team is generally:
- to grow the business
- improve its operations
- generate a reap the rewards of business ownership
An owner may approach the management team he/she has cultivated with a view to succession. This is usually the case when a founding shareholder wants to retire or a majority shareholder wants to exit.
An MBO may be the result of a forced sale through administration or a company restructuring.
How can JCP help?
It is important to involve experienced solicitors, accountants and, if appropriate, corporate finance specialist as soon as possible. We will assist throughout the start of the process from considering how the deal is structured, to due diligence and funding, through to finalising the legals and closing the deal.
We are familiar with the challenges and MBO can bring having advised on transactions large and small. We understand the journey and, despite the sometimes rocky road, often find this is a most rewarding time for seller and management team.
If you would like to further information please contact us via our Live Chat or feel free to directly contact a member of our specialist team listed below:
- Chris Davies
- Director & Head of Healthcare
- Betsan Powell
- Director & Head of Commercial Services
- Michael Williams
- Director & Joint Head of Corporate
- Steve Penny
- Consultant - Commercial Services
- Maria Kerrigan
- Legal Secretary - Commercial Services
- Connor Massey
- Trainee Solicitor - Corporate Commercial
- Rhianydd Llewellyn
- Associate Solicitor - Corporate Commercial
Advantages v Disadvantages of an MBO
An MBO can ensure continuity of the business’ operations and executive management team, which sits well with lenders, and is favored by customer and clients, as they can expect the quality of service to continue.
Quick and easy to arrange
Selling a business can be a lengthy process – a buyer must first be found who will usually wish to carry out detailed commercial and financial due diligence before committing to the purchase. Selling to existing employees can be much quicker – they are already involved in the business and will have knowledge of the business that a third party buyer would not.
Peace of mind
Parting with a business that has been built up over a number of years can be difficult for an owner. Handing the reigns to a known and trusted team makes that transition easier.
For the management team, an MBO is usually the easiest, quickest and least risky way to become business owners. Starting a business from scratch or buying from a third party has many unknowns.
Confidentiality is more easily maintained. It is not necessary to disclose sensitive company details to a third party buyer which is often a competitor – this always carries an element of risk even if there is a confidentiality agreement in place.
Higher chance of success
A management team will usually already have an in-depth knowledge of the business and so are able to hit the ground running. They may already have identified organisational and procedural changes that can be swiftly implemented. It is also easier for them to maintain relationships with key clients and suppliers.
The financing required for an MBO is often quite substantial and in many cases the management team are not able to fund the purchase themselves. In these cases funding is often sourced from banks or private equity firms or the seller. This can result in debt being created at the start of business ownership which can put increased pressure on the business to perform and often comes with an element of personal risk for the management team. External funding inevitably means a level of scrutiny with the new owners being answerable to lenders and investors.
Employee to owner
The transition from employee to owner requires a change in mindset. Managers may be very experienced in the day-to day running a business but less so the strategic and entrepreneurial side business ownership. Not all managers may be successful in making this transition.
Running the business
The MBO process can be gruelling for buyer and seller. Often, neither party will have been through a transaction process and the level of detail and information required – especially where there is debt and equity funding – can be significant. Whilst all this is happening, the business must still be run meaning added pressure for management.
Speak to our Business Solicitors in South Wales
To speak to our expert solicitors for management buyouts (MBO's) in South Wales, please contact your local JCP Solicitors office:
To ask a quick question or arrange a call back, use our simple contact form to make an enquiry.