COMING UP FAST: Crash Course - How to launch an MBO

COMING UP FAST: Crash Course - How to launch an MBO - You feel unloved and frustrated: the business you're running has huge potential but the parent company doesn't seem interested and there are rumours that they're looking to sell. If ever there's a time

by ALEXANDER GARRETT

You feel unloved and frustrated: the business you're running has huge potential but the parent company doesn't seem interested and there are rumours that they're looking to sell. If ever there's a time to mount a management buy-out it is now. But the stakes are high: get it wrong and you could bankrupt yourself and lose your job.

EXAMINE YOUR MOTIVES. The most important reason to do an MBO is to build yourself some capital, according to Mark Perchitti, private-equity partner at accountants Deloitte & Touche. Other reasons are a desire to run your own business and escape the meddling clutches of a parent firm. The most common MBO situations are those where the business has become non-core to its parent, or where a private owner of a family business is retiring. Be wary, though, of regarding a management buy-out as a way to protect your job.

CHECK THE FEASIBILITY. MBOs are invariably leveraged by outside finance, so you need a strategy to sharply increase profits - say, by cutting costs or by expansion - enabling you to service debts and significantly boost the value of the equity a few years down the line. Consider whether finance will be forthcoming and whether the business is viable as a standalone.

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