Contemporary capital markets see an increase in the number of innovative financing strategies. Due to fast-paced changes happening on a global scale, business owners and managers turn to alternative ways of keeping their companies profitable. One of the most practical solutions for breathing some fresh air into a business is to conduct a management buyout (MBO). This procedure consists of several vital elements, which need to be performed with special care and commitment, to avoid some wrong moves. In this overview, you can learn how to approach an MBO and conduct it without any difficulties.
Talk to the owners
The most dangerous thing that can happen during a management buyout is a misunderstanding with the owners of the venture. If you fall out over this matter, it will end the procedure before it’s even started. What’s more, it could put your managerial position at risk. Therefore, here’s what communication rules should be followed before and during the buyout:
- Hold a meeting with owners – When your trust of managers has reached an agreement on the buyout, schedule a meeting with the owners and inform them of your plan.
- Distribute the roles – At this point, you have to appoint the primus inter pares, i.e. the main ambassador of your group. That person will be your front man in negotiations. What’s more, that manager will also represent you before investors and lenders, as well.
- Set the deadlines – If you don’t take the initiative, the buyout could last for years. To make things move faster, set the milestones and the deadline for the buyout procedure.
Mind your regular duties
When you’re preparing to become one of the owners of your company, don’t neglect your everyday business tasks. Now that you’re active in two different fields, it’s crucial that you adapt your work schedule to the new conditions. Firstly, you might need an extra hand, so think about hiring a part-time financial adviser. Nevertheless, pay them from your own income, rather than from the business budget. Also, it’s wise to form a special fund with other fellow managers in case of any unexpected expenses.
Apart from that, spend more time at work, especially at weekends. Both the current owners and the lenders need to see that you can chew everything you’ve bitten off. That way you’ll prove that you’re capable of holding the fort once you take the reins of the business.
Get in touch with banks
The most delicate part of every MBO-process is collecting assets. Needless to say, one part of this overtaking fund needs to consist of your own assets. However, if there are five managers included in this process, with an average annual salary of $150,000, it won’t suffice to fund the entire process on your own. So, you’ll have to contact a variety of lenders, to provide additional assets for your buyout endeavor.
For starters, get in touch with banks. A clever thing to do here is to turn to the banks that have collaborated with your company for years and ask for a loan. What’s more, if the current owners guarantee for that loan, it will show that they believe in the expertise and skills of the management team.
Contact private lenders
Private lenders are often more efficient than banks in granting borrowings or investing assets. Additionally, in this case, you’re not restricted to lenders only from your country. It means that you can rely on private equity firms from Australia, buyout financiers from the USA or investors from any other part of the world – choose the ones that offer the best conditions.
As you negotiate the terms and conditions between your management team, the lender(s) and the investors (if any), seal the deal with a shareholder buyout agreement. This document will define the rights and responsibilities of every party involved in financing your newly overtaken company.
When managers decide to buy a business from its owners, everybody can make a profit. However, it’s a complex procedure that needs to be conducted in a proper way. If you follow the points presented in this article, it will ensure that your management crew becomes a respected and successful part of the business community.