M&A Stories – MBO on behalf of management
Capitalmind is one of the market leaders in Management Buy Outs (MBO), having advised on numerous buyout transactions over the years.
One of the situations which we advise on is assisting management teams to (partly) buy the company they are work for from their employer. This can be in connection with the succession planning of an owner at a family-owned business or related to the divestment of a non-core business unit of a large company.
One needs to realize that the owner always has more options, as the owner can also sell the company to a strategic/market party without involving management (as a buyer) in the transaction. Therefore, the MBO on behalf of management is always a sensitive process where management needs to keep fulfilling their normal business role and would also like to become owner of the company. As such management has a typical conflict of interest in such a situation, but also a rather strong position as people and management are essential in any company. Transparency is then key, including quickly looking at whether and how the MBO can be financed.
The financing of the MBO is in any event paramount, where management normally does not have enough capital to buy the company. Therefore, a (Private Equity) investor usually teams up with management to largely finance the transaction as a sponsor, incentivising management to jointly own the company. The idea is to jointly grow and fine tune the company, achieving higher returns while maintaining the characteristics of the company that have led to success. These days a ‘sponsorless MBO’ is trendy as well, where the MBO transaction is financed by one or more (international) banks, debt funds and/or mezzanine funds without involving a PE firm. The advantage for management being that they will be able to own the company in full or at least for a (more) significant part.
For more information about management buy outs and our MBO deals click here.