An introduction to the process of management buy-outs

Management buy-outs (MBOs) are a common process within M&A activity: but how much do you know about the process?

The acquisition of a business by the management team supported by private equity investment and/or debt financing (an “MBO”) is, for all those concerned, but in particular the members of the management team, a demanding experience.

Every MBO will involve, many (many…) documents, endless questions, people thinking that they know more about your business than you do, long days, late nights and pressure on home lives.

However, do not let that put you off! Although the MBO process is a complex one, if you have chosen your advisers and investors well, they should guide you on the issues and help you through the process. Good advisers will keep you informed and the transaction moving forward, focusing on providing solutions and delivering the result.

Your position will also be helped by understanding the issues which are important to you and others and the expectations of the various parties. One of the most important points to bear in mind is that the perception of a good management team is one which displays a good track record and a reputation for reliability, consistency and leadership in their field. A team which exhibits these characteristics will win the confidence of the investors.

Broadly speaking an investor will be looking for:

  • a business with a good track record, market position and with real growth potential;
  • strong past and reliable future cash flow;
  • good financial systems and controls;
  • a business with a sound customer base; and
  • a management team which instils confidence.

The members of a management team should be organised and prior thought as to who within the team shall be responsible for different parts of the transaction will help in sharing the burden. Every member of the team will need to be committed to the transaction (not just financially) and prepared to contribute to the process.

Some management teams may have concerns about the apparent closeness of the relationship between the various advisers involved. This concern is invariably misplaced as it is common for the lawyers, investors and bankers who are involved in these types of transactions to come across each other on a regular basis.

In fact, in our experience, this is usually advantageous to the process since the professionals are used to working together.

Above all you should never be afraid to ask questions of your advisers, however silly you may think the questions are. The advisers are aware of the pressures of making the jump from employee to owner manager and of the concerns that this may raise.

They will also be aware that throughout the MBO process you still have a business to run! There will undoubtedly be occasions when you will feel stretched and harassed but it is important for you to remember that everyone is working towards one objective, a successful conclusion.


Praseeda Nair

Kellen Rempel

Praseeda was Editor for from 2016 to 2018.