When looking at an exit strategy, there are several routes business leaders and company founders can take. One option is to sell the company to the existing management team. A sale to the existing management team may be a preferred option over the traditional trade sale, for a number of reasons – like preferring not to have to disclose company sensitive information and approaching competitors, but rather, want to leave the company and all who work for the company, to continue on independently in an existing, known, safe environment.
The Management Buy-Out, or MBO, is simply the management team of a company combine resources to acquire all or part of the company they manage.
Here are 5 ways that will help to secure a successful MBO.
The right capital, not just any capital.
Whether it’s venture capital and banking, or just banking, you should allow yourself plenty of time to raise the finance you need for an MBO. Selecting the right finance option is not just about securing capital, but rather, selecting the right business partner that will support you throughout the MBO, and beyond. Be careful not to risk long-term disaster due to short-term navel-staring. Selecting the right finance option is critical to ensure not only the successful MBO, but the long-term support of your legacy, and the company’s future. To read more about selecting the right business support, read this blog.
A united, committed management team
A motivated and committed management team, that displays a wide variety of skills, expertise and industry-knowledge is critical to ensuring a strong MBO. But this doesn’t happen overnight. Management structures need to be developed, sometimes created, and nurtured, in order to find their own structure and strength. Sometimes it may become necessary to outline leadership divisions and responsibilities, making the necessary plans for eventualities such as retirement or illness.
Remember, a strong, united management team means that your leadership sets the tone for a company culture that supports and emulates, in order to move forward.
Profitability is King
A company with a good track record of profitability is sure to spell out success for a Management Buy-Out. Surprisingly, when finalising a MBO, the one thing many buyers neglect is the necessity to plan for sufficient working capital on top of the funds required to complete the transaction. Being able to demonstrate a long-term plan with sufficient working capital able to sustain the business long after the dotted line has been signed, serves as an additional appeal to any investor looking to help your organisation become even more successful.
Good future prospects with little high risk
On many occasions, lenders may only allow 1 opportunity to apply for funding – so getting it right, first time around, is vital. Apart from being able to demonstrate a track record of profitability, what you also need to focus on is to demonstrate a good list of existing and future prospects, with a degree of certainty of turning into revenue producers for the business. Steer clear of high risk prospects that may create nervousness with investors as opposed to excitement.
Operationally sound, operationally strong.
If you have all of the above, but you are operationally lacking – then your shell of what may appear to be like an exciting prospect, has just been crushed. The heart of your business lies in how well you are able to execute and operationally deliver on the commitments you’ve made to your clients.
Investing enough focus on building an operations team that is able to carry the business through times of change is the one guarantee that will see your MBO be concluded successfully, and your business surviving in the long-run.
Missing anything that we’ve mentioned above? Need help to get your business on track for a successful MBO? Then you need to speak to us today about getting your business aligned.