Acquisitions are now more prevalent than ever before. And opportunities for employees and managers to buy-in or buy-out their businesses are occurring every day.
A management buy-out (MBO) is the sale of a business to existing management. A management buy-in (MBI) is the sale of a business to an external management team. As management can generally not provide the entire purchase price financial sponsors typically participate in this type of deal. This can be providers of equity, debt, mezzanine or a combination thereof.
The key elements that will make an MBO successful are:
- Seller is willing to sell and cooperative;
- Selling agreement is signed;
- Selling price is under the market for the industry, determined by an experience valuation team;
- Buying team has hands-on experience in running the business;
- Buyers can demonstrate the ability to make a substantial personal financial commitment;
- Experienced MBO advisors are retained to guide the buyers through the complex process;
- Cash flow of the company will support the debt service with generous margins.
The fast moving nature of today's business world can mean companies haven't had the time to accumulate the concrete assets traditional lenders often demand as security. Asset based finance is now an acceptable and preferred route of many senior managers as a way to fund company acquisition, buy ins and buy outs. |
