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Management Buyout (MBO)

Another means of exiting from a business is to pass on the leadership and ownership by selling the business to the current management team or employee group

Advantages of an MBO

Confidentiality of the sale

Business Continuity

(Relationship management with customers, employees + suppliers)

Speed of completed transaction

Familiarity of the team

Issues with MBOs

There are many common issues that arise during an MBO. WelchGroup helps put a plan in place to mitigate these types of issues

Management

Agree on the Management team, the process, level of investment, focused on deal while company suffers, may not be taken seriously

Trust

Management negotiates directly with vendors which can destroy trust built

Funding

Management not being able to secure funding for various reasons including: lack of credibility, weak business plan, etc.

Expectations

Vendor has unrealistic expectations, Management can downplay company strengths to negoiate a better deal

1

Initial discussions between owners and management

  • It can be awkkward negotiating against your employer or employee
  • Set rules of engagement

2

Business valuation

  • More likely to be successful if vendor has realistic valuation expectations
  • Engage an independent valuator to determine fair market value

3

Preparing the confidentiality agreement

  • Contains sufficient information about the company to allow a prospective

4

Financing the Management Buyout

  • Can include any combination of debt and equity lender/investor to make a financial decision and assess their level of interest

5

Due diligence

  • Prepared financial statements for the last 5 years
  • Year-to-date interanl financial statements
  • Financial projections and defendable assumptions for the next three years
  • Organizational chart
  • Material contracts (i.e. major vendors, clients, banking, property leases, etc.)
  • Employment contracts

6

Negotiate the terms of the deal

  • Purchase price
  • Timing of the deal
  • Post-transaction involvements/roles
  • And much more

7

Closing

  • Lender/investor to make a financial decision and assess their level of interest

Contact Our MBO Specialist Stephan May

Role of Advisor

  • Assess feasibility of the MBO
  • Propose business valuation and determine purchase price
  • Prepare and manage confidentialty of the deal
  • Identify financial lenders/investors
  • Negotiate and structure the financing
  • Advise vendor and management on negotiation structure
  • Setup the data room
  • Manage the due diligence process
Due Diligence

Contact Stephan May to discuss a management buyout    smay@w-group.com | 613.236.9191

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