Lake Falconer Partner

MBO: How to go from manager to business owner

Learn how you could buy out your company in seven steps.

By Lake Falconer

“What if I owned the company I work for?”

It’s a thought that occurs to many in management. After all, you know the business as well as anyone. You’re invested in its future and you have plenty of ideas. Wouldn’t it be great to gain equity for your efforts? Business ownership doesn’t have to be a pipe dream. Over 90 management teams bought out their company in 2017*. These people went from employees to owners almost overnight.

Of course, there’s a lot of work leading up to the transition. A good management buyout (MBO) takes months of negotiation, planning and fundraising. Want a better idea of what’s involved? Here’s a typical MBO journey in seven steps.

Management buyout in seven steps

1. Do some serious thinking. Before you get attached to the idea of an MBO, ask yourself some important questions:

  • How much do I want this? Buying out a company means committing around a year’s gross salary (which can be borrowed). Think about how the company can grow, what you’d gain and whether you’d enjoy business ownership
  • When should I do it? Consider whether you’re ready to take the reins now. You  may realise your career or personal life isn’t in the right place. You’ll also need to anticipate the owner’s motivations and the current climate for corporate deals
  • Who’ll be involved? It’s possible to buy out a company by yourself, but many MBOs are done by management teams of two or more. Think about who would want to join you and what value they’d add

2. Hire an adviser. It’s sensible to get a corporate finance adviser in from the start. We can validate your ideas and expectations for the management buyout. We’ll also kick off conversations with the current owner, helping you avoid any awkwardness or early mistakes.

3. Create a business plan. You’ll need a business plan to get finance for the management buyout. Make sure it has a strong executive summary, as financiers do make quick decisions. The current owner will want to see your plan too. As well as being emotionally invested in the company, they may have a continuing financial interest in it (depending on how the buyout is structured). You’ll be glad of a good business plan when you take over. Once the buyout happens you’ll have less time for strategising, but plenty of targets to meet!

4. Reach an agreement. Few things in life are as nerve-wracking as negotiating with your company’s owner. Being employed by them means it’s all the more important to stay on good terms. A corporate finance adviser can keep the discussion running smoothly. We can push back and deliver bad news for you, so things don’t get awkward in the office. Plus, an adviser will help structure the deal. This includes setting out:

  • How the buyout team will pay
  • When and how ownership is transferred
  • The responsibilities of the buyout team and seller after the deal is done

5. Raise finance. Leave plenty of time to raise finance for the MBO. You’ll want to find a good deal – but don’t go with just anyone who waves nice numbers at you. Whether it’s a bank or venture capital firm, you’re choosing a long-term partner. It’s important to go down the aisle with the right one.

6. Do your research. There are bound to be areas of the company you’re not 100% familiar with (even if you didn’t realise it). So it’s crucial to get due diligence done by a professional. This can be a comfort to you and your financiers, as it should raise any potential issues or opportunities before you go further.

7. Close the deal. With a solid agreement and funding in place, you should be set to sign the contract and pop a bottle of bubbly. Then it’s time to knuckle down and run your own business.

A practical guide to management buyouts

For more information, download our practical guide to management buyouts or learn more about how we can support your MBO.


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