Management Buy-Outs (MBOs)

At McAvoy & Associates we understand that a management buy-out (MBO) can be a great opportunity for an existing management team to either own a stake in their business or own it outright. However, while a MBO can lead to financial success, it is not a venture for the faint-hearted. It takes courage to leave the security of employment as a manager and face the challenges that business ownership will bring.

 

Business risk and financial stress can be daunting however these risks and stresses can be reduced by working with advisors who are accustomed to the MBO process. Our experienced business advisory team can assist and manage the process for either the vendor or the management team allowing them concentrate on the day to day running of their business.

Typical problems that we come across

  • Distraction from running the business – the MBO process can be a major distraction to the running of the business. Sometimes an MBO team will see the MBO as an end to itself and will end up consumed by the issues that it generates. If this is allowed to happen the business can start to deteriorate. When this happens, financers can get cold feet.
  • The wrong mix of funding – funding an MBO requires investigating a variety of sources of funding from bank finance to mezzanine debt providers, vendor financing and private equity among others. Sometimes the management team might jump at the easiest source of finance available, not realising that the finance needed for the buy-out might be inappropriate to meet the needs of the business as it grows.
  • Cash flow strains on the business – every MBO team works to grow the business it acquires. But sometimes the team fails to appreciate that the growth it generates must meet a profitability hurdle. Growth at any price can be a dangerous mantra.
  • Not anticipating potential “deal breaker” issues – if there’s one issue that any management team must prepare for it’s the kind of deal-breaker issues that arise just when it’s thought that the deal is on the rails and nearing completion. Issues such as seller’s remorse, key terms being changed by the financial partners, unexpected deal costs, etc. must be anticipated and dealt with at as early a stage as possible if the deal is not to be de-railed.
  • Lack of leadership from within the MBO team – without a strong and capable leader being appointed the MBO’s chances of success will be slim. Someone is needed to make the tough decisions that the team will face. The sooner this person is identified the better.

How we can help

The importance of choosing a good advisor wisely cannot be overstated. An experienced advisor will educate the vendor or the MBO team on the challenges and difficulties that lie ahead, can source the capital needed to finance the buy-out and can negotiate with the providers of capital.

 

It is essential to feel comfortable with the advisors, their capabilities and their level of experience. We understand that a MBO may be a life-changing experience and that the selection of an advisor who can educate them on the process and prepare them for the likely pitfalls is vital.

 

We advise on all aspects of the MBO process including:

  • Evaluating the opportunity from a financial and commercial perspective
  • Assisting with the negotiations
  • Providing advice on deal-structuring options and advising on funding options for the transaction
  • Providing due diligence services
  • Project managing the process from commencement to a successful completion
  • Assisting with post transaction integration