Management Buyout (MBO)

One of the most successful and popular ways to realise the value in an owner managed business is through a management buyout (MBO). This involves essentially selling your business to the employees, usually the senior management, that already work and help to run the business.

This often leads to a smooth sale to people you already know and trust to continue leading the business from strength to strength whilst you as the owner get to realise the value you have created in the business and move on to the stage in your life.

For a more detailed look and insight into management buyouts you can read one of our articles that go into depth – What is a management buyout (MBO) and how does it work?​

Also read about one we have recently completed and how we helped them successfully sell to their management team in a way that benefited everyone and helped secure the future of the business under the new team whilst allowing the owner to reduce his involvement and retire.

How Dexterity Partners can help

We specialise in advising Owner Managers on how to sell their business to maximise the value to shareholders. We are different from all other advisors, accountants and sales brokers because  we provide a start to finish service. It is personally managed and not handed over to a junior colleague once signed up.

We manage all aspects of the sales proposes as follows:

• Preparation,( “Fit to Sell”) and Fit for the Future (“F4F”)

• Valuation framework

• Negotiations

• Due Diligence Support

• Support to 3Volution’s Legal agreement (Sale and Purchase Agreement).

This is possible due to the unique skills within Dexterity Partners, we have all the skills in house, including qualified accountants and solicitors. Additionally Simon has a doctorate from Warwick Business School designed to show how Owner Managers maximise their business value.

Initial Proposal

The process usually begins when the management team expresses interest in acquiring a part of or the entire company.

As the seller, you will receive a proposal outlining their intentions. It’s important to evaluate this initial proposal critically, considering the management team’s ability to successfully lead and finance the buyout. However it could also be a proposal from yourself to the management team or part of more informal discussions about the business succession in which the possibility arises and gets discussed.

Valuation and Due Diligence

The next step involves determining the fair market value of the business. This is crucial for both parties to ensure a fair transaction. You, as the seller, should engage financial advisors or valuation experts for an accurate assessment.

Concurrently, the buying team will conduct due diligence to thoroughly understand the company’s financials, legal standings, and operational metrics.

Negotiating the Deal

Once the valuation is clear, negotiations begin. This stage involves discussing the price, terms of the sale, and any other conditions. It’s important to negotiate terms that are favourable and protective of your interests while also being fair to the buying team. Legal and financial advisors play a critical role in these negotiations, which Dexterity Partners can provide both of these services together in one joined up service.

Financing Confirmation

The management team will need to secure financing for the buyout. As a seller, you should seek confirmation of their financing arrangements. This often involves a combination of equity, debt, and sometimes seller financing. Ensuring the buyers have solid financial backing is crucial to the success of the deal and it is important that you as the seller are happy with the financing arrangement.

Structuring the Deal

The deal can be structured in various ways, depending on tax considerations, financing arrangements, and other factors. Common structures include leveraged buyouts, earn-outs, or straight cash deals. Your advisors will help you understand the implications of each structure and choose the one that best fits your objectives.

Legal Documentation and Closing

Once the deal structure is agreed upon, legal documents are drafted. These include the purchase agreement, shareholder agreements (if applicable), and any other relevant contracts.

It’s essential to review these documents thoroughly with your legal advisors. After all parties agree on the terms and the paperwork is in order, the deal can close.

Post-Closing Transition

After the deal closes, a transition period often follows where you, as the seller, might assist in transferring control of the company to the management team. This phase is critical to ensure a smooth handover and continued business operations.

Final Settlement and Post-Deal Formalities

Finally, ensure all financial transactions are completed as per the agreement, and attend to any post-deal formalities, such as notifying stakeholders, transferring shares, and updating company records.