Management buyouts & buy-ins

Businesses need risk takers - will yours thrive or survive after you've gone?

Buyouts, buy-ins, management takeovers…it sounds like a minefield

But when done well, they can be cost effective and efficient ways to sell your business. We’ve got lots of experience in guiding business owners through the process and make the right decision.

What’s the difference between a buyouts and buy-in?

Management Buyout (MBO)
Management Buy-in (MBI)

Management Buyout (MBO)

A management buyout (MBO) can be a popular choice for a business owner wanting to sell their business or phase their retirement over a period of time. A buyout means that the existing team will buy shares in the business.

From the owner’s point of view, it can be easier to strike a deal with the existing team rather than looking externally. It usually means less due diligence, a simpler sale and purchase agreement with less warranties and indemnities, and therefore lower professional fees. There’s also the added comfort that the owner knows what the management team is capable of.
Management Buy-in (MBI)

A management buy-in (MBI) means that an external management team will buy shares in the company and take it forward. The process of buying a business or selling a business is the same as a trade sale in all other respects.

Challenges of a MBO

There are a few things to consider before pressing ahead.

Is finance available?
Is the team ready?
Who to include?

Is finance available?

The management team rarely has enough money to put a deal together without the seller’s financial support. This often means that the owner receives funds over an extended period, and sometimes accepts a lower price for the business than if it was sold externally.
Is the team ready?

Managers can feel pressurised into putting an MBO together. Whilst it’s flattering to know that the owner has confidence in the management team, it has to be right for them too. The roles of director and shareholder are very different to that of a manager – buying a business and running one involves taking risks. The MBO team will usually need to raise money themselves and might be asked to give personal guarantees.
Who to include?

And then of course there is the sensitive question of who to include and exclude in the MBO team? Here there is a danger of including the wrong calibre of person simply for fear of upsetting them.

Helping you to decide

Consider the worst-case scenario – a failed MBO attempt can lead to a disillusioned or demotivated management team. So, it’s really important the business owner is sure that the managers selected are the right people to take the business forward. Likewise, managers need to be sure that they want to buy it and to run it with the people chosen for the MBO.

Talk to an expert team

We’ve advised many business owners and management teams over the years, and so can lend an experienced ear. We can challenge your thinking, suggest possible deal structures and help raise the finance needed for the transaction.

Please email us at confidential@djh.co.uk to arrange a private call or meeting.