There is no doubt Covid-19 has played a significant role in how business owners have operated and planned over the last 18 months, especially long-term exit strategies and succession planning. The pandemic has forced M&A from a seller’s market to a buyer’s market; acquisition strategies were halted, and in-talks takeovers lost value almost overnight. Business owners were left with their exit plans in tatters with two options; take the lower offer or remain in the business longer than planned.
In stepped the Management Buy-Out (MBO), an alternative option to the traditional acquisition without taking a significantly reduced offer. An MBO provides the businesses management team with the opportunity to acquire the company (usually with the right financial backing in place). Typically, this will allow the outgoing owners to realise a value closer to the valuations before Covid-19; albeit, the payment is less likely to be a traditional up-front payment but more of a longer-term earn-out.
There are many advantages to an MBO over a traditional sale, mainly the relative ease of the transaction and how smooth the process should be, compared to usual extended negotiations and diligence processes. There is likely to be a good relationship between the outgoing ownership and the management team, which will open up a smoother negotiation for both sides; given that the management team knows the business inside-and-out and is best placed to understand the value of the business (not only to the market but to the owners). Selling to a strong management team that the owners have an established relationship with could also reduce the risk of any post-deal failure and can put the owner’s mind at ease, knowing the business will be in safe hands.
The high-intensity nature of M&A means that when opportunities arise, they must be actioned quickly or else the moment may pass. We strongly believe that the requirement for M&A advisory services has never been so relevant. If you would like to learn more about how Translink IMA may help you understand how a management buy-out can be structured and implemented for your business, please do not hesitate to get in touch with one of our advisors or visit our website at IMA Corporate Finance.
Translink IMA is part of Translink Corporate Finance, an international M&A group with over 600 finance professionals located in 30 offices across the globe. Our offices have closed transactions in every industry, and our sector expert groups include IT, SaaS, Healthcare, Food, Automotive, Industrials and Transport. We focus on providing our clients with deeper insights into global developments and knowledge on targets and bidders in their respective markets.
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