Management Buyout (MBO)
Management Buyout (MBO)
One of the most successful and popular ways to realise the value in an owner managed business is through a management buyout (MBO). This involves essentially selling your business to the employees, usually the senior management, that already work and help to run the business.
This often leads to a smooth sale to people you already know and trust to continue leading the business from strength to strength whilst you as the owner get to realise the value you have created in the business and move on to the stage in your life.
For a more detailed look and insight into management buyouts you can read one of our articles that go into depth - What is a management buyout (MBO) and how does it work?
Also read about one we have recently completed and how we helped them successfully sell to their management team in a way that benefited everyone and helped secure the future of the business under the new team whilst allowing the owner to reduce his involvement and retire.
4 Reasons to choose Dexterity Partners
We have an experience of advising on MBO’s. For example we are currently (summer 2023) undertaking the sale of two owner managed businesses to existing management.
One may involve an external investor with the existing remaining single director and the other is a complete sale to a 3-person management team.
Communication and technical support
We know how valuable and emotional a business can be to those involved. We ensure you are involved at all stages of the decision making whilst we take responsibility for the technical “heavy lifting” necessary to get the deal right for both parties.
Whilst we will be acting for you, the Seller we passionately believe in achieving a win- win outcome for both the Buyer and Seller. What is often overlooked by advisors “pitching” to Sellers to win work is that the relationship rarely ends on the signing of the Sale and Purchase agreement , hence our Fit for the Future analysis.
Supporting and managing the team
We act as partners to you, not standalone advisors. An MBO process is often the first time it has been undertaken by both the owners or the existing management doing the buyout.
It is therefore important that all the processes are clear and simply explained to ensure that both the buyer and seller understand the issues and make the right choices.
We act as your sounding board for all issues. It is something that owners greatly value but only realise its importance once the process is in progress.
MBO Project Management
Our ability to offer an end-to-end service means we can project manage the whole transaction, avoid costly administration often repeated if there are several different advisors.
How Dexterity Partners can help
We specialise in advising Owner Managers on how to sell their business to maximise the value to shareholders. We are different from all other advisors, accountants and sales brokers because we provide a start to finish service. It is personally managed and not handed over to a junior colleague once signed up.
We manage all aspects of the sales proposes as follows:
Preparation,( “Fit to Sell”) and Fit for the Future (“F4F”)
Due Diligence Support
Support to 3Volution’s Legal agreement (Sale and Purchase Agreement).
This is possible due to the unique skills within Dexterity Partners, we have all the skills in house, including qualified accountants and solicitors. Additionally Simon has a doctorate from Warwick Business School designed to show how Owner Managers maximise their business value.
The process usually begins when the management team expresses interest in acquiring a part of or the entire company.
As the seller, you will receive a proposal outlining their intentions. It's important to evaluate this initial proposal critically, considering the management team's ability to successfully lead and finance the buyout. However it could also be a proposal from yourself to the management team or part of more informal discussions about the business succession in which the possibility arises and gets discussed.
Negotiating the Deal
Once the valuation is clear, negotiations begin. This stage involves discussing the price, terms of the sale, and any other conditions. It's important to negotiate terms that are favourable and protective of your interests while also being fair to the buying team. Legal and financial advisors play a critical role in these negotiations, which Dexterity Partners can provide both of these services together in one joined up service.
Structuring the Deal
The deal can be structured in various ways, depending on tax considerations, financing arrangements, and other factors. Common structures include leveraged buyouts, earn-outs, or straight cash deals. Your advisors will help you understand the implications of each structure and choose the one that best fits your objectives.
After the deal closes, a transition period often follows where you, as the seller, might assist in transferring control of the company to the management team. This phase is critical to ensure a smooth handover and continued business operations.
Valuation and Due Diligence
The next step involves determining the fair market value of the business. This is crucial for both parties to ensure a fair transaction. You, as the seller, should engage financial advisors or valuation experts for an accurate assessment.
Concurrently, the buying team will conduct due diligence to thoroughly understand the company's financials, legal standings, and operational metrics.
The management team will need to secure financing for the buyout. As a seller, you should seek confirmation of their financing arrangements. This often involves a combination of equity, debt, and sometimes seller financing. Ensuring the buyers have solid financial backing is crucial to the success of the deal and it is important that you as the seller are happy with the financing arrangement.
Legal Documentation and Closing
Once the deal structure is agreed upon, legal documents are drafted. These include the purchase agreement, shareholder agreements (if applicable), and any other relevant contracts.
It's essential to review these documents thoroughly with your legal advisors. After all parties agree on the terms and the paperwork is in order, the deal can close.
Final Settlement and Post-Deal Formalities
Finally, ensure all financial transactions are completed as per the agreement, and attend to any post-deal formalities, such as notifying stakeholders, transferring shares, and updating company records.
I'm delighted to be joining forces with K3. We pride ourselves on
delivering a high-quality service and we can add greater value to our clients through the provision of K3's broad range of advisory services. Businesses are facing unprecedented levels of financial hardship and we are now in an even stronger position to help businesses navigate the current economic storm."
Dexterity Partners played a critical role in managing the complete sales process, from negotiation to legal completion. This enabled me to remain focussed on the business whilst having an experienced sounding board who understood all the issues. Dexterity Partners unique approach with a single point contact controlling the whole process, improved the final agreed value and terms of the deal.
Michael Chamberlain, founder and director at Chamberlain & Co.