Management-Buy-Out

A management buy-out (MBO) is a form of company takeover in which the existing management buys the company. This can be considered, for example, for small and medium-sized enterprises (SMEs) that are to be sold. Here are the steps that are usually followed in an MBO:

1. Planning: The management team makes the decision to buy the company.
2. Financing: The financing of the purchase is organised. As a rule, only a fraction of an MBO is financed with the private assets of the previous management; a large part of the financing is provided by banks, private equity companies, increasingly family offices and the previous owners themselves.
3. Company valuation: The company is valued in order to determine the purchase price.
4. Negotiations: Negotiations are held between the management team and the current owner to finalise a sales agreement.

It is important to note that the entire company does not have to be taken over, only parts can be taken over. If parts of the company are taken over, they are spun off and a new company is created.

A management buy-out (MBO) has several advantages for both the management and the selling owners:

1. Continuity in the company: As the existing management takes over the company, continuity is maintained and there are no interruptions in the management of the company.
2. Knowledge of the company: The buyers already know the company with all its strengths and weaknesses. They can then decide for themselves which areas they should develop further.
3. Attractiveness for the selling owners: An MBO can be attractive to the selling owners for a number of reasons, e.g. the continuity of management, the faster and more efficient transition processes and the potential monetary benefits.
4. Increase in company value: The company value can often be increased by the investments made by the company successor.
5. Attracting additional investors: It may also be possible to attract additional investors to the company.

There are also disadvantages to a Management Buy Out (MBO). Here are some of them:

1. Lower sales price: Due to the usual loyalty discount, a sale to management usually generates lower proceeds than a sale to investors or another company.
2. Difficult financing: In many cases, employees do not have sufficient equity to finance a company purchase. The purchase price is usually not available in the employees' bank accounts. Buyers often have to take out a private bank loan and get into debt.
3. Operational blindness: In order to be successful on the market, business processes and procedures must be regularly analysed and, if necessary, updated.
4. Hierarchical differences in negotiations: Negotiations can be made more difficult by existing hierarchical differences.
5. The challenge of changing roles: Switching from the role of management to the role of owner can be a challenge.