Management Buy Outs

Advantages v Disadvantages of an MBO

Continuity

An MBO can ensure continuity of the business’ operations and executive management team, which sits well with lenders, and is favored by customer and clients, as they can expect the quality of service to continue.

Quick and easy to arrange

Selling a business can be a lengthy process – a buyer must first be found who will usually wish to carry out detailed commercial and financial due diligence before committing to the purchase. Selling to existing employees can be much quicker – they are already involved in the business and will have knowledge of the business that a third party buyer would not.  

Peace of mind

Parting with a business that has been built up over a number of years can be difficult for an owner. Handing the reigns to a known and trusted team makes that transition easier.

For the management team, an MBO is usually the easiest, quickest and least risky way to become business owners. Starting a business from scratch or buying from a third party has many unknowns.  

Confidentiality

Confidentiality is more easily maintained. It is not necessary to disclose sensitive company details to a third party buyer which is often a competitor – this always carries an element of risk even if there is a confidentiality agreement in place.

Higher chance of success

A management team will usually already have an in-depth knowledge of the business and so are able to hit the ground running. They may already have identified organisational and procedural changes that can be swiftly implemented.  It is also easier for them to maintain relationships with key clients and suppliers.

Funding

The financing required for an MBO is often quite substantial and in many cases the management team are not able to fund the purchase themselves. In these cases funding is often sourced from banks or private equity firms or the seller. This can result in debt being created at the start of business ownership which can put increased pressure on the business to perform and often comes with an element of personal risk for the management team. External funding inevitably means a level of scrutiny with the new owners being answerable to lenders and investors.

Employee to owner

The transition from employee to owner requires a change in mindset. Managers may be very experienced in the day-to day running a business but less so the strategic and entrepreneurial side business ownership.   Not all managers may be successful in making this transition.

Running the business

The MBO process can be gruelling for buyer and seller. Often, neither party will have been through a transaction process and the level of detail and information required – especially where there is debt and equity funding – can be significant. Whilst all this is happening, the business must still be run meaning added pressure for management.

Speak to our Business Solicitors in South Wales

To speak to our expert solicitors for management buyouts (MBO's) in South Wales, please contact your local JCP Solicitors office:

• Swansea 
• Caerphilly
• Cardiff
• Carmarthen
• Cowbridge
• Fishguard
• Haverfordwest
• St Davids

To ask a quick question or arrange a call back, use our simple contact form to make an enquiry.