Ask The Legal Expert - Management Buyouts

"Our management team have been invited to consider an MBO for the business we work for, but we are new to the process. What do we need to consider?”

MBOs involve the management team buying the business they manage, consequently gaining a stake in shaping its future. Employees who have been with the business for many years or who hold senior positions often far prefer to take over the management themselves if the business comes up for sale, rather than see the business sold to a third party. 

An ambitious management team may approach current owners with a proposal outlining:

• why they want to buy the business
• what they think it is worth
• how they would fund the purchase

The aim of a management team is usually to:

• grow the business
• improve its operations
• generate and reap the rewards of business ownership

Alternatively, an owner may approach the management team he or she has cultivated, with a view to ensuring a smooth and carefully planned succession should the owner wish to sell the business. An MBO is an attractive succession plan for owners who wish to exit/retire, allowing continuity of management and often a less arduous sale process.

In terms of financing the sale, MBOs are financed in various ways and often use a pool of funds from several sources. This can include seller financing (by deferring some of the purchase price), a financial contribution from the management team, and debt and equity funding. Getting the right funding in place is crucial to the long-term success of the business, and our team of corporate solicitors have a wealth of knowledge when it comes to MBO finance and sales processes.

As every business is unique, MBOs can take a number of different forms and they can be complex and challenging. It is very important for the seller and MBO team to seek tailored and detailed advice from experienced solicitors, accountants and corporate finance specialists, as early as possible in the process.

The Corporate Commercial team at JCP Solicitors has been providing specialist advice and assistance on a wide range of corporate and commercial transactions for over 20 years. For Corporate Commercial advice get in touch with Director Betsan Powell on 03333 208644  or email betsan.powell@jcpsolicitors.co.uk

The question posed is based upon a hypothetical situation. The content does not constitute legal advice and is provided for general information purposes only.