Exit Strategy : the Management Buy-Out (MBO) and Buy-in (MBI

As a business owner it is very likely that you have spent many years of hard work into making a success of your business.  Experience has taught many owner managers in the same position that this hard work can quickly count for little or nothing if your exit strategy is not well planned and implemented in advance of your actual decision to sell or step down.  There are several different exit strategies that we can advise on and help you as the owner get the financial results you deserve.  Over the next few blogs I will be present some of these and will include some of the advantages and disadvantages of each.

This first article focuses on MBO and MBI’s as a strategy to exit.

Management Buy-Outs (MBO)
MBOs are common for the owner managed business, in particular for those who are willing to pass their business onto the existing team that helped to make it a success. This route ensures business continuity and provides peace of mind for the employees and other stakeholders.

Generally a MBO arrangement will enable the current management team to acquire the company via an MBO vehicle which will prevent them from having to raise all of the necessary finance personally and to then repay it from their own personal taxed income.

We have considerable experience in negotiating and implementing MBOs, making the process simple and efficient (read painless) for all parties, i.e. the current and the new owner managers. We can advise either of the MBO teams, specifically advising the current owner on all aspects of the buyout, including finding finance, creating the MBO vehicle and liaising with HM Revenue and Customs.

MBOs are a complicated process and require careful planning and adequate support and assistance at every stage to ensure completion is as fast as possible and the results the best outcome for all parties.

Management Buy-Ins (MBI)
MBIs are similar to an MBO but it is the option of choice for those looking to sell to a manager or management team who are outside of the existing company.  This is of particular relevance when there is no obvious internal succession path.  Often this arrangement will involve an outside investor to assist with the funding of the MBI.

From an emotional viewpoint MBIs can cause uncertainty within the existing stakeholders (specifically employees) as they may not know the new management. Time and care must be taken ensure continuity is maintained from a commercial point of view.

The benefit of a MBO or MBI
A MBO or a MBI is often the best case scenario for many business owners and in many cases is the most effective of the exit strategies.  This route has several significant advantages:

  • MBO – The existing managers understand the business, and already have experience with running it
  • MBO – The existing managers will have detailed knowledge about the business so negotiations may be easier, and the motivation to run a business may already exist.
  • MBO – The existing managers may not need to personally raise the necessary financing and it may not need to be paid from their personal taxed income.
  • MBI – Outside investment can often refresh a company and lead to renewed growth.
  • MBI – A new management team can bring in new ideas and skills
  • MBI – The buy in team will not need to personally raise the necessary financing and again it will not need to be repaid from their personal taxed income.

Over the past 20 years we have advised many owners on how best to exit from their businesses,  Phil McConnell himself has been involved in the sale of several companies in which he was a significant shareholder. Future blogs will describe the benefits others type of exit strategies, including a trade sale and a company purchasing its own shares.  If you wish to discuss with Phil how he can advise you as an owner manager get the results you deserve, contact Phil .

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