The Management Buy-Out Process

MBO

The management buy-out process can last anywhere from three months to a year or even more. The following are the steps involved in a typical Management Buy-out. However, in some cases, some of the steps may not apply and also the order does not necessarily indicate the timing. A lot of issues outlined below would be dealt with simultaneously.

STEP 1 - Initial Consultation (confidential "no fee" consultation)

STEP 2 - Making the First Approach

Who within an organisation to first approach about a possible MBO is vital. Generally speaking, you will have a good idea who the most approachable person is. Of course, it may be a case that the existing shareholders / management have approached you with a view to considering an MBO (considering an exit?). In the extreme case if you approach the wrong person they immediately may regard you as a threat and this could have consequences for your existing position.

STEP 3 - First Approaches and Completion of Confidentiality Agreements

In order for you to be able to talk to your professional advisors, the target company will require you to sign a confidentiality agreement so certain information can be released to your professional advisors and yourself.

STEP 4 - Deciding on the MBO Team

Generally, MBO's are driven by one to two senior management. An important part of the process which we will assist you in is to try to determine what other key members of the management team you should include. The seller will generally appoint their own advisors to assist them in the negotiations. The possible negative effects of not choosing certain members will have to be examined and the split of shareholding between the management team will have to be agreed. It is probably best for the main drivers of the MBO to go as far down the process as possible before introducing other key members of management.

STEP 5 - Valuation and Negotiation

Following the receipt of financial information about the company, we will prepare valuations with a view to the commencement of negotiations with the seller. The seller will generally appoint their own advisors to assist them in the negotiations. While historic financial information is important from a valuation prospective, a good business plan is important to help you underpin this valuation. The negotiation process will take place between the company's advisors, the management and their advisors. It is important to point out to the target company the advantages of a management buyout, e.g. reduced due diligence, the importance of any management in a potential sale, etc.

STEP 6 - Business Plan

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