Considerations for an MBO

Management Buyout Series

Part 2: Considerations before, during and after an MBO

What is a Management Buyout?

A management buyout (MBO) is a transaction where the core management team of a company work together to buy a company, or part of it.

Please refer to our blog on MBOs: the Pros and Cons

Before the MBO

Forward planning by the business owner is essential

The business owner needs to identify key people and ensure they are trained with the appropriate skills

The owner needs to consider what value they want to extract and how/when they want to receive this

The management team need to consider how much they are willing to pay

The management team need to consider how they will finance the MBO

The management team need to have in place a good business plan

During an MBO

Careful consideration needs to be given to the structure of the deal

Usually managers will use a newco vehicle to purchase the shares in the company – appropriate legal and tax advice must be taken

Are there investors who will have a stake in the company?

Is the seller retaining a stake in the company?

What controls do the investors and/or seller wish to retain?

The owner and the management team must be separately represented

All parties need good legal (and financial) advice as to the structure of the deal

The legal teams will prepare and negotiate all relevant documents

After an MBO

Is the owner taking all his money and riding off into the sunset to enjoy his retirement?

If the owner is not to receive the full consideration up front, how/when will this be paid and is it linked to ongoing performance?

Ensure all the equity and debt finance is repaid as per the terms

Ensure a smooth transition of the business

Ensure the management team are ready to take the business forward

The management team should consider their long term plans and how a future exit may be structured

If you have any questions about the above, please get in touch with a member of the MLP Law Corporate team by emailing corporate@mlplaw.co.uk or calling 0161 926 9969.