29 Sep What is a Management Buy Out and a Management Buy In?
If you are thinking about retirement, exiting your business, or starting a new venture, you may wish to consider a Management Buy Out (MBO) or Management Buy In (MBI). It can also apply if you wish to sell-on a department away from your parent company or take a business from being publicly traded to privately owned. You can even retain some shares if you want to remain involved with the business in a lesser capacity.
In this article, Andrew Dongworth, company and commercial solicitor at HRJ Foreman Laws Solicitors talks in more detail about MBOs and MBIs.
What is a Management Buy Out and what are its advantages?
A MBO is when the existing management team buy into the business and take ownership and control. Usually the business will be running successfully with potential for growth in the future. The major benefit of a MBO is that the management team already have experience and knowledge of the business, its clients and its employees. It can therefore ensure a more seamless transition and continuity of the business. Often customers and employees are reassured as the existing management remains the same.
Also, negotiations and the sale process are often faster when compared to a MBI.
What is a Management Buy In and what are its advantages?
A MBI involves a third-party management team such as a hedge fund, private equity firm or a company buying the business and bringing in their own management team. Business owners may wish to pursue this option where the existing management team do not have an interest in buying into the company, are unable to get the necessary financial backing or do not have the necessary experience to drive the business forward. It is also often an option where the company is underperforming, and a new management team will bring fresh ideas and strategies to set the business up for future success.
What do I need to do to start the process?
Before you start the process, it is important to get your business ready. Both MBOs and MBIs will involve due diligence on the company. During due diligence the buyers will look at the financial, commercial and legal status of the business. You can work with us to conduct a review of all your legal documents and to ensure everything is in order. Your financial adviser will also advise you on getting the best price for the business.
How we can help
Our experience in this area can guide you through the entire legal process from the start through to completion.
This will include dealing with the share purchase agreement, tax covenant, investor agreement, shareholders agreement, finance security documentation, employee contracts and documents relating to the transfer of any intellectual property, land or commercial leases from the seller to the target company.
More information:
- I’ve found a business I’d like to buy. What happens next?
- Know your responsibilities as a company director
- Legal advice for business sales and acquisitions
For legal advice on company and commercial matters:
- Email info@hrjforemanlaws.co.uk
- Call Hitchin 01462 458711 or Welwyn Garden City, 01707 887700
- Complete our contact form here