If you’re the owner of a business, and you’re looking for a way out, then a management buyout might strike you as a viable exit strategy. It’s something that’s been victim to several myths and misconceptions over the years – and so your idea of what an MBO entails might not quite match with reality.
Here, we’ll tackle some of the more common points of misunderstanding.
What if my management team cannot raise the money?
You might assume that, if your team doesn’t have the required cash, then they’ll be unable to go ahead with the buyout. But if the fundamentals of the business are sound, and there’s enough cash coming in, then there’s no reason that your management team won’t be able to secure finance from outside investors.
The marketplace for funding has never been better suited to getting a management buyout off the ground. As such, a lack of cash shouldn’t be viewed as a particular egregious obstacle.
Won’t I get a better price from a trade buyer?
This isn’t always the case. Besides, a management buyout will often offer efficiency savings which outweigh any hypothetical difference in the amount being offered. For example, if you go for a management buyout that’s funded by private equity, then you’ll be able to avoid putting your business up for sale on the open market. Consequently, your competitors won’t be aware that your business has been put up for sale. You won’t, therefore, have put yourself at a competitive disadvantage.
I need to part company from my business
A management buyout doesn’t need to be absolute. The existing business owner doesn’t have to part with 100% of their holdings. In fact, you can be quite sophisticated when you’re arranging the transaction, giving just a portion of it to your management. You might retain your holding in the form of loan notes. You might retain a role within the company, even if it’s just as a consultant or a non-executive director.
Part of the appeal of a management buyout is that it offers a degree of continuity. You’ll be able to sell to people who know the business, and will be able to run it in the way that resonates with the values you’ve instilled in it. By staying on board for a while, you’ll be able to ease the transition, and protect the business from the shock that might result from your departure.