A management buyout (MBO) can be an investment opportunity for non-equity managers or a tactical play by founders or senior shareholders to support their exit strategy. In this article, we will explain the basics of what SME companies should think about when they consider an MBO.
What is a management buyout?
A management buyout is a way for a management team to purchase shares in the company from the founders or existing shareholders. Managers can group together to acquire a large part of the company, or all of it, depending on the exact circumstances.
There are different reasons as to why managers may want to buy out a company, though the most common reasons are wanting to benefit financially from future company growth and wanting to be owners of the company rather than employees.
Management buyout opportunities for SME companies
Management buyout opportunities arise when founders or senior shareholders decide they want to wind down their involvement in a company or the company needs a new driving force. Opportunities may also arise in times of financial hardship or where the future of the company is uncertain and investment is needed – something senior shareholders looking for retirement may not have the appetite for.
A management buyout may also arise during a transitional phase and can form an important part of a growth strategy. For example, senior managers may be willing to relinquish part of their shareholding to incentivise and lock in a junior equity team to help to grow the company.
Are you considering a management buyout?
If your business is considering a management buyout, the owners or the incoming MBO team should take advice on their positions. The share purchase agreement is one area for negotiation but the post-MBO shareholders’ agreement is another crucial document. The shareholders’ agreement will regulate how the post-MBO shareholders will work together, how decisions will be made and what will happen if a shareholder leaves the business, dies or has their employment terminated.
For the incoming shareholders, funding will play a big part in how the deal is structured. Lending rates are currently low and this has led to an increase in management buyouts.
If you are planning your exit strategy and considering a management buyout, or you are a manager looking to buy out the owners of the business you work in, professional advice should be sought. As experienced solicitors in Bristol, we have the legal insight and expertise required to help you consider all of the implications before embarking on a management buyout.
Get in touch today by calling 0117 962 1205 or fill out our contact form to find out more.