Why you should consider selling your business to an MBO team

A management meeting where the speaker has the full attention of the audience

One of the most often heard myths about Management Buyouts (MBOs) is that trade buyers will always pay more. This can be true, especially for a fast growing company in a sector where there’s strong M&A activity from synergistic buyers as they will surely pay a higher price. But for a more stable business, and especially if the vendor is part-funding the deal, the best price can be achieved from an MBO.

Aside from this, there are other very good reasons to think about selling to your management team.

To reward and retain
Many vendors pursue a buyout to reward loyal management and also to retain their commitment to the business. This is especially relevant in consulting businesses and other “people businesses” where it’s all too common for vendors to see business value damaged when key team members leave to set up in competition. Selling to the team crystallises the vendors’ investment while rewarding and locking in the team.

It reduces the confidentiality risk of selling
For business owners it can be scary going through a sale process with third-parties due to the very sensitive nature of the company’s operations. A buyout is a chance to sell a controlling interest without sharing confidential information with a strategic purchaser – often a competitor.

Existing management are a sophisticated buyer
The incumbent managers know the business well and the timeline of a sale process could be shortened.  And also the risk of not closing the deal may be less than compared to selling to a strategic purchaser.

Management might leave if a third-party sale goes through
In this situation the vendor might be forced to stay in the business for longer than they’d planned perhaps as part of an earn-out arrangement.

The volatility or trading cycle of the business may be difficult to explain
If the business is cyclical or very niche its virtues may be difficult to articulate to a third party buyer. 

The keys to a successful MBO
Aside from having a successful profitable company with a good team the other key to a successful MBO is pursuing it for the right reasons. If exit value is the seller’s highest priority it may well be best to explore a trade sale first unless it’s pretty clear that a buyout would deliver an adequate price – but other motivations are often also important, and remember it’s a myth that the trade buyer will pay the highest price in every circumstance.


Get in touch with us for an informal chat about MBOs and why our experience in buyouts could benefit you.

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Lake Falconer

Corporate Finance Partner
Lake leads the PEM Corporate Finance team on MBO, acquisition, disposal, succession and strategic planning. He also heads up PEM’s valuation team providing business valuations for shareholder exits, disputes, business planning and regulation. Lake has over 30 years' senior level experience as a business adviser and as a manager in industry. He holds the ICAEW corporate finance qualification.

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