A management buyout (“MBO”) is a form of acquisition where a company’s existing management team acquire a large part, or all of the company, from either the parent company or from the private owners.
MBO’s are conducted by management teams as they want to get the financial reward for the future development of the company more directly than they would do as employees only. A management buyout can also be attractive for the seller as they can be assured that the future stand-alone company will have a dedicated management team thus providing substantial downside protection against failure. This ensures their continued legacy, as well as reducing the likelihood of onerous due diligence processes being required.
Additionally, in the case of an MBO, financing for the transaction would also be more easily secured than for a transaction with a third-party seller with its own management team due to the lower underlying risk.
What financing forms are available in the event of an MBO?
Management buyouts, therefore, clearly represent a method whereby an owner can exit their business and realise a further return on the initial investment made when putting standard operating procedures in place.
The legal, taxation and commercial considerations required when planning a management buyout could be cumbersome and we would recommend careful planning well in advance should this be an option for you or your company.
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