Management Buyout
The acquiring of a business by its current management is called management buy-out (MBO).
If a business’ owners or the existing shareholders want to sell it, existing management people are often in the best place to buy them out and take the business forward. They know the business related intricacies and are therefore in the strongest position to value it (to decide if it is worth buying) and then subsequently run it. We may also view it as that they will work hard for themselves than they will for other people.
Management buyouts are often carried out by a consortium of the existing management and external supporters. Management buyouts normally need more capital than a start-up and are often financed by private equity firms or venture capital.
In a business that is under-performing because of bad management, a management buy-in may be preferred. This is purchase of the business by new shareholders which have new management.
Some reasons for the buyout of a business by its management are:
- Some parts of the organization are not considered ‘core competent’ any longer.
- The company needs liquid money or ‘cash’.
- To avoid succession issues due to retirement of owner in family businesses.
- The management team may get a chance to form future strategy for the company by gaining autonomy.
- A management buyout may be attractive to a seller too due to:
- A management buyout is quite fast than a trade sale.
- There may be strategic considerations.
- The confidentiality of the management buyout is desired in case the seller does not wish to disclose sensitive information to competitors.
- The seller may continue to deal with familiar management it has already developed a relationship with.
- Pricing may prove to be beneficial.
Written by: Matt
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Tagged as autonomy, bad management, business owners, consortium, current management, external supporters, family businesses, future strategy, intricacies, management buyout, management buyouts, management team, new management, private equity firms, shareholders, succession issues, venture capital + Categorized as Business, Economy articles, Finance, Ladership & Management