Management Buyouts – Does it make sense for you and/or your managers?
Management buyouts have become a common exit strategy when selling a business, and there are two sides to the transaction. On one side, there is the owner looking to sell part or all of its company. On the other side, there is the buyer – an employee of the company being sold.
While an MBO, is in fact, an acquisition, it does not involve an outside group. Rather than being acquired by another company or outside investor, in an MBO, the business is acquired by its own management team. During a management buyout, some owners intend to sell 100% of the company, while others wish to retain a residual interest.
So why should you consider management buyouts? Well, they are actually a positive indicator for most companies, maintaining company culture and growth opportunity and shortening the lengthy due diligence process of selling to an outside investor. Ultimately an MBO shows that employees value the work of the company and believe in its future.
You may want to consider a management buyout if the following factors are present within your company.
Since a company’s management team is often the most knowledgeable about the business, a transfer to those individuals usually proceeds without major drawbacks. These new, yet familiar owners understand the culture and values of the company, which will also help in reassuring other employees who may be hesitant about the buyout.
A Culture of Confidentiality
If keeping internal processes and responsibilities confidential is important for the success of your company, the most trusted individuals to hand it off to would be those who already know the insider information. Rather than risking the core foundation of the company by selling to an outside investor, you can find comfort in knowing that the new owners respect the confidentiality of the business as much as you do.
If the company is positioned for growth and operates within a stable industry, it is better for those who understand the business to continue driving it forward. Outside investors may attempt to change the path of the company and take risks that alienate current employees and customers.
An MBO can have substantial financial payoffs if, as the business owner, you have realistic expectations about the value of your company and are willing to work with both the management team and the financial investors. The business owner and management team should consider three things with a private equity partner:
- Their financial resources
- How they align with your company’s interests
- The value-added services they can provide
Management buyouts are a viable exit strategy alternative for business owners. If you’re ready to sell, consider your options and contact Symmetrical to learn if a management buyout is right for you and your team.