There are all sorts of ways that business ownership and management can be organised in the current era. The names and acronyms can be difficult to keep up with at times, but it’s important that you keep your eye on the ball – you don’t want to miss out on any opportunities.

Today, we take a look at management buyouts – a term that essentially refers to a kind of corporate takeover. We’ll explore what they are, when they might be appropriate, and some other bits and pieces along the way.

Management buyout defined

Management buyouts (or MBOs for short) refer to a situation where members of the management team buy the company they’re working for from the owner.

This will normally result in a complete transferral of ownership and responsibility, with the previous owner either moving on to another business endeavour or retiring.

While it might sound quite simple at first, it is a process that needs to be properly planned out in advance. Whether you’re on the buying or selling side of an imminent corporate buyout, it’s important that you consult an expert in business sales beforehand.

How does it work?

The process, from beginning to end, is relatively simple. It will look something like this:

• Management will express a desire to buy the business, and/or the owner will express a desire to sell.
• An independent valuation of the business will be carried out, to ascertain its true value. Based on this, both sides will negotiate a fair price.
• The potential buyers will seek to determine where they can get investments from, if they don’t have the capital themselves. This might take some time, and will require extensive planning and documentation.
• Once appropriate investors have been identified and supply capital, the sale will be completed. This will likely be the longest stage of the whole process.
• The new owners will take control of the business.

Depending on what niche the industry is in, there may be additional steps that have to be carried out. The new owners may need to show that they’re qualified and certified (such as in the legal and financial industries) or you may have to jump over other regulatory hoops.

Why would an MBO be appropriate?

There are a number of reasons why management or the business owner might be interested in an MBO:

• Management may have a different vision of where they want to take the company, and see that vision as incompatible with the current owner.
• Members of management may feel like the owner lacks the expertise to take the company in the right direction, and may find that frustrating to deal with on a regular basis.

There are many more besides these – just because your goals don’t match those stated above doesn’t mean that pursuing an MBO is the wrong strategy for you. Choosing to start a management buyout process can have serious repercussions, and it’s vital that you do so in an appropriate manner. Always seek advice first, so that you can start the process on the front foot.