A management buyout (MBO) is one way to plan for succession of a business when the owners are seeking to step back. Solicitor Kerry Southworth from Harrison Drury’s corporate and commercial team provide a brief outline on how an MBO works and what is involved.
What is a management buyout?
A management buyout (MBO) involves the existing management team of a business purchasing it from its owners, who are looking to exit the business.
In most cases, an MBO involves the management team that has grown with the business who will then take full control and ownership.
What are the benefits of a management buyout?
Management buyouts often provide a simpler transition of ownership as opposed to a third-party buyer.
Many of them are planned over long periods of time, enabling the ‘new’ owners to fully integrate with the business.
Employees, existing customers and suppliers are likely to feel reassured by an MBO option, as it will ensure business continuity.
What needs to be considered before taking the plunge into a management buyout?
In some cases, those undergoing a management buyout underestimate the toil it can take on both parties.
The owner goes from boss to former chief, and the management team transition from employees to owners.
This shift in power can cause problems if not dealt with carefully.
How does a management buyout work?
Typically, a management buyout is seen as an in-house takeover, however the legal and tax situations do not allow for that.
Incoming and outgoing parties may not realise that it is an intricate process requiring the expertise of solicitors to advise on the best routes to take.
A management buyout can be a long time in the planning, therefore it is advisable to engage your team as soon as possible to ensure a smooth transition and a successful exit.
See also our article : The five golden rules of management buyouts
Harrison Drury’s corporate and commercial team has extensive experience working with owner-managed businesses and can provide expertise for all forms of transactional services. Our team’s personal relationships within the accountancy, banking and finance communities ensures we have a true partnership approach towards getting the job done. If you are considering selling your business or wish to discuss proceeding with a management buyout, please contact our team on 01772 258321.