How should I go about an MBO?
I‘ve come across a business I admire and would like to run. I know the founder well, and he’s interested in stepping aside and letting someone else run it. He has a few other backers that own minority stakes. My plan would be to do a management buy-out of the business, involving one of the employees, plus some of my own people and an investor. How should I go about this?
A. Rosaleen Blair writes:
There is no perfect recipe for a successful management buy-out, but some things are essential. First, make sure the business has a good track record and is on a firm financial footing. So check out the business before taking your plan to the next stage, looking at its financial statements in-depth, but also understanding how it goes about doing business. You could speak to current clients, research opinion in the market, or even find out what it feels like to be a customer, perhaps through a ‘mystery shopper’ programme.
Ensure you fully understand the market the company operates in and the context for its success – has it performed better than its competitors, or has it failed to capitalise on significant market growth? You also need to understand the likely future of the market you’re buying into, and what factors might affect the growth of the industry or your company’s success within it.
You must also have a clear vision for the future of the company and a realistic business plan detailing how this vision can be achieved. Over-confidence at this planning stage is an easy trap to fall into and could leave you with growth and cashflow targets that you may later regret.
Finally, you need a willing partner to provide the funding necessary to get your plan off the ground. There are a number of ways to secure this, from private equity firms that will take shares in the company to traditional banks and vendors that will lend capital. Each option has its own strengths and weaknesses, and you will need to decide which path is the right one for you.