We have been talking to a number of people recently about possible management buyouts and we thought you might find it interesting to read about our thoughts on them.
Management buyouts are, as the name suggests, when the management decide to buy the company they work for. In the first instance we tend to talk around the following points:
Is this something you really want?
Owning your own company sounds impressive, but if requires a phenomenal amount of hard work and a large injection of cash.
Can you manage the owner?
It is always advisable to develop a sound relationship with the owner. They may not want to sell and, if you can manage the MBO through to conclusion without alienating them, you will benefit from their expertise and contacts in the long term.
Do you have you the right people in place for the new management team?
You will need an MD, FD and, depending on the company, a CEO too. Be sure you have the right people for these roles.
Have you planned the finances?
It is a complex process to negotiate a MBO to completion and appointing a corporate finance advisor is key to obtaining success. In terms of funding, a mixture of bank debt and private equity are the normal methods. Banks will expect you to invest personally to show your commitment and private equity firms will expect a professional business plan to be in place with a three to five year time frame.
Do you have the nerve to see it through?
It is important to stay calm and focussed throughout the process, which can take up to 6 months to complete and don’t forget throughout it all you have to keep up with your day job – you want the company to still be profitable when it is finally yours.
