Navigating the challenges of a management buyout

A management buyout (MBO) can be a fantastic opportunity, but it’s not for the fainthearted.

The process can be gruelling, as the MBO team will need to juggle their job and home life while dealing with investors, lawyers, accountants, corporate finance advisers and, of course, the owners of the business.

No two MBOs are the same, but there are a few common ways they tend to come about. It may be decided that a business owned by a large corporate is no longer core. If there’s a strong management team, the corporate might decide to sell the business to them. Or existing shareholders, who have built up the business, may want to exit. In fact, they may have consciously built up a strong management team to effectively make themselves redundant and, as a result, made it easier to sell the business without them.

Alternatively, the management team might propose the buyout to the owner. This is often the result of managers seeing an opportunity to kick-start a business that they think isn’t being run at its full potential. Occasionally we come across situations where the owner is running it for cash, taking out dividends rather than investing in its growth. The management might be frustrated and think they could do a better job of scaling the business.

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