Management Buyouts

You’re a manager within a successful company, the owners have indicated that they want to sell or retire from the business and you decide that you want to take over the business yourself, rather than see it sold to an external party. This is where you would consider a management buyout. Management buyouts occur when the current management team acquires a controlling stake in or complete ownership of the company they work for.

When it comes to navigating the complex legalities of a management buyout, partnering with the right lawyer is essential. That's where Nash & Co comes in. With years of experience advising on management buyouts, our expert team are well-equipped to guide you through the process, from initial planning to successful completion.

 
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What is a management buyout?

A management buyout is a business transaction where the managers of a company buy a controlling interest in or complete ownership of the business from the current owners. This can happen in multiple ways, but typically involves a straight transfer of shares from the current owners to the management team or the formation of a new company controlled by the management team that buys the shares of the current owners or acquires the assets from the existing company. Tax implications can be an important factor in determining the structure adopted. 

Management buyouts tend to appeal to managers who already effectively run the business on behalf of other owning shareholders or who believe that they can run the business more efficiently or profitably. Management buyouts can be a way to ensure a business remains in the hands of people who know it well, rather than selling it to an outside party or liquidating it when the owners want to exit from it.

Austin Blackburn

How does a management buyout work?

There are typically 7 steps of the management buyout process:

  • Identifying the opportunity

  • Company valuation

  • Negotiating the terms of purchase

  • Financing the purchase

  • Due diligence

  • Legal documentation

  • Completing the transaction

Throughout the process, the management team may work with various professionals, including lawyers, tax advisors and accountants, and investment bankers to help facilitate the transaction.

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Who can be involved in a management buyout?

A management buyout typically involves the existing management team of a company and the current owners, but other parties can be involved, including:

  • New investors: outside investors that can help to finance the transaction

  • Non-controlling shareholders: these may need to be encouraged to sell at the same time, or the parties may be happy for them to remain as minority stakeholders 

  • Other employees: part of the transition may involve ensuring that key staff remain on board and incentivised

  • Advisors: lawyers, accountants and investment bankers/lenders 

Austin Blackburn

What are the advantages of a management buyout?

The advantages of a management buyout include:

  • Continuity of existing management means reduced disruption

  • Incentivises productivity as the management team has a direct stake in its success

  • Increases flexibility in making strategic decisions and implementing changes as the management team are also the owners

  • Potential cost savings if the management team are willing to invest in the longer term

  • Potential better access to financing for existing management than outside buyers

In summary, a management buyout can be a good option for businesses looking to maintain continuity, incentivise their management team, improve flexibility and opportunities for potential cost savings, and allow an orderly exit for the current owners.


Nash & Co

Why Nash & Co?

Management buyouts need careful project management. You need lawyers and accountants who know how to get things done. We have significant experience of acting for both sides of management buyouts and an established network of contacts with accountants and institutional lenders who are similarly experienced in dealing with successful management buyouts.

By using our reputation, contacts and experience, we’re able to steer you through the complex procedures involved. We’ll spend time with you, so that we get to know the deal inside out. This means we can properly navigate the correct path for the deal.


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Frequently asked questions

In this comprehensive video series, our experienced corporate and business law experts will tackle a wide range of topics and questions that commonly arise in corporate and business environments. From legal structures and contracts to intellectual property and employment law, we've curated this series to empower you with practical information and valuable insights to help your business thrive.

  • There are lots of advantages to a management buyout but it’s important to be aware of any risks associated with a management buyout, including:

    • Taking on high levels of debt

    • Distractions from the day-to-day running of the business during the transaction

    • Loss of skills of the current owners

    • Valuation risks

    • Loss of key employees

    As with any transaction, it’s important to carefully consider the risks and benefits and work with experienced professionals that can help to mitigate the risks and ensure a successful outcome.

  • There are several ways to finance a management buyout, including:

    • Borrowing money from banks, lenders and private equity firms

    • Raising funds from investors in exchange for ownership

    • The seller of the business providing financing in the form of a loan or deferred payment terms or an earnout

    The financing structure of an MBO will depend on multiple factors, including business size, the level of debt the management team is comfortable with, and the level of risk that lenders and investors are willing to take on. Working with experienced professionals, such as lawyers and financial advisors, can help you to determine the best financing structure.

  • Existing shareholders may sell their shares to the management team or a company controlled by the management team, particularly if they believe that the management team is capable of growing the business or are the most viable bidders for the business. The price paid for the shares will depend on a variety of factors including the needs of the current owners and the prospects of the business.

    On completion of the sale, the existing shareholders will usually cease to be involved but sometimes will remain for an agreed period of time as consultants or employees to allow a smooth transition of the business or to protect any agreed earnout.

    The management team need to be mindful that in some cases external buyers may be able to offer a higher price for the shares, and if maximising the exit payment is the priority for the existing shareholders then they may opt to sell to them instead.

    The interests of shareholders and the management team may not always be aligned, particularly regarding priorities or objectives. It is important for all parties to work with their advisors to ensure that the terms are fair and reasonable for everyone involved.

  • A management buyout can offer employees stability and continuity, avoiding the disruption and uncertainty that new owners and new managers can often bring. This can help maintain or increase employees' job security and morale. The management team will have a direct interest in the success of the business, which incentivises them to invest in and grow the business, providing opportunities for employee development.

    Financing the management buyout may require the management team to take on significant debt, which could lead to changes being made to the business to cover the costs of this. It is important to communicate openly and transparently with employees about such changes to help manage concerns, though it is usual to keep the fact of negotiations for a management buyout at a ‘need to know’ level until the deal is done so as to avoid rumour and speculation.

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