A management buyout, or MBO, can be a good solution when the owner wants to step back but the company’s best future owners are already inside the business.
The strength of an MBO is continuity. The management team knows the customers, people, processes and risks. This can reduce uncertainty during the transition and help keep the company’s culture and the way it creates value intact.
However, an MBO is not simply an agreement between the owner and the management team. It requires a realistic valuation, a financing structure, clarity of roles, an assessment of the management team’s capabilities and a deal structure that does not overburden the company’s cash flow.
A good MBO answers three questions: does the management team want to become owners, can the company finance the deal, and can the current owner realise the value fairly?
When preparing the deal, the management team’s own contribution, the amount of external financing and the risk of deferred payments to the seller each need to be assessed separately. The payment schedule must match the company’s realistic free cash flow, taking investment needs into account as well.
WIZEN helps plan and carry out the MBO process with the interests of the owner, the management team and the company’s long-term value in mind.