Management Buyout
A management buyout (MBO) involves a group of employees acquiring all or part of the company that they manage. Management buyouts usually fall under the category of Leveraged Buyouts (LBO), where the management team secures an ownership interest in the enterprise predominantly through debt financing.
Management teams are often in a position to ascertain exit planning by the owners and are able to formulate an acquisition strategy that prevents the business from being marketed to outside parties. In other situations the owners are contemplating an exit plan and approach the management team because they want to facilitate a confidential transaction, place the business with a trusted team, and cause minimal disruption to existing business relationships. In all cases the financial structure of the deal must be determined along with the fair market value of the enterprise.
Common reasons for an MBO:
- A company is in financial distress and needs cash.
- An owner’s desire for retirement.
- Components of an acquisition are incompatible with strategic objectives.
- Components of the organization are no longer compatible with strategic objectives.
- The management team seeks ownership to facilitate autonomy, growth, profitability improvements, development of new products, implementation of new strategies, or to capitalize on some perceived market opportunity.
An MBO may be attractive to the seller for numerous reasons which include confidentiality, strategic planning, continuity, familiarity with management principals, and rapid exit. An MBO is generally less expensive to the seller and results in a quicker transaction closing.
What are the advantages of a management buyout?
August 27, 2015
Is an MBO or LBO right for you and your business? A management buyout (MBO) is a complex transaction in which a company’s managers acquire a large part or... (Read more)