A Management Buy Out (MBO) is one of the most common exit routes in today’s marketplace for a family or owner managed business to realise their hard work and effort in growing a successful company. However, Lexington meets and speaks to many business owners and their management teams who believe that an MBO is not a viable exit option.
Often, that opinion is misplaced and founded upon:
This is the most common misconception – if the company is profitable and genera*ting positive free cash flow, there are any number of Banks and prospective Investors who would want to explore the potential of providing the funding to complete a transaction;
This isn’t necessarily true – there is a wall of Private Equity (PE) money out there which is hungry to find the right investment opportunity, back the MBO management teams and fund a transaction. PE can be a simpler, quicker and a much more confidential route to go down than a sale to trade which risks your competition knowing your business is for sale; and
Neither statement has to be true – there are any number of potential transaction structures that can be put in place. Often the seller retains a shareholding or leaves deferred consideration in the form of Loan Notes that can pay a very attractive ongoing interest coupon. It’s also not unusual for the seller to stay on in a Consultancy or Non-Executive Director capacity either. The good news is that the funding marketplace is ripe to be approached to look at these MBO opportunities so don’t fall into the trap of believing these myths.