MBO – Management Buy Out
A management buyout (“ MBO” ) is the purchase of an equity interest in a business by its incumbent management. If you are considering an MBO or a similar transaction, we have prepared the following responses to a number of frequently asked questions by our clients:
Why do you want to buy the business?
You need to be clear about your personal motives for undertaking an MBO, be they financial reward or job satisfaction. You are likely to need to show resilience and commitment to the transaction as it progresses.
How much is the business worth?
Whether or not you have already agreed a price with the vendor, we can assist you by providing an indicative valuation range for the business.
How can you afford to buy the business?
It is unlikely that you will be expected to finance the deal entirely from your combined personal wealth. Nevertheless, you will usually be expected to make a reasonable contribution towards the acquisition price, to show commitment. The balance will come from debt
and / or equity providers.
How can we assist?
We can lead the transaction for the MBO team and manage the deal, from beginning to end, to a timely conclusion. At the outset, we can advise you on feasibility, strategy and tactics. We can also advise you on corporate and personal tax planning and on financial structures for the MBO. We can co-ordinate the due diligence processes and, if required, introduce you to corporate lawyers. To assist with your fund raising, we can work closely with you to prepare a business plan and financial projections. The business plan provides an in-depth commentary on the business including its markets, customers, suppliers and future opportunities. The financial projections are prepared in the format expected by most providers of finance.
What are the risks?
The decision to undertake an MBO brings a number of important risks, for example a breach of confidentiality, personal guarantees,infighting between members of the MBO team, or the vendor aborting the transaction unexpectedly. Moreover, the distraction of management time could cause the company’s results to suffer and might even lead to your financers withdrawing their backing.
If you are a company director, you have a statutory duty to act in the best interests of the company’s shareholders at all times. Therefore you need to be very careful if you spend company time or expense on your proposal or if you pass confidential information to a third party without gaining prior approval. We can discuss the potential risks applicable to your proposed MBO.
How long does it take?
From agreement of heads of terms to transaction completion should take about three to four months. Prior to agreeing heads of terms, the expected time frames depend on whether you are in a competitive auction against trade buyers. We shall, of course, aim
to help you complete the transaction as quickly as possible, although should problems arise, the expected time frames can be delayed.
What are our fees?
Our fees, for the majority of the work we undertake, are usually success based so that our interests are aligned with yours. However, certain parts of our work are charged independently of whether the MBO completes or not and we can discuss these with you
beforehand.
To find out how we can be of service to you, please contact your nearest office or complete the enquiry form below.
| London t: 44 (0)20 7387 5868 |
Solent t: 44 (0)1489 566 700 |
| Portsmouth t: 44 (0)23 9275 4820 |
Thames Valley t: 44 (0)1753 759 000 |
