It’s a common enough story. The management are running a business well, but the owner has lost their mojo. Maybe they’re cruising, maybe they’re thinking about spending more time with their family – or golf clubs. If you are a manager, the thought is bound to occur to you sooner or later: “I could do a better job.” You might well be right.
Companies such as the AA, Boots, TalkTalk and the plumbing heating arm of builders’ merchant Travis Perkins have all been bought out by their management in recent years. In fact, management buyouts are surprisingly common. Around 15-20 private equity-backed deals are completed every month in the UK. These tend to be at the larger end of the MBO spectrum, suggesting that many smaller deals are also being done. The path to an MBO has many benefits and is a well-trodden one. So is an MBO on the cards for you?
What precisely is an MBO?
The simple answer is that the managers take ownership of a business, but MBOs can come in various flavours and happen for a variety of reasons. Sometimes they are triggered when a large company wants to dispense with a subsidiary. But usually an MBO comes about because the current owner – often the founder – is approaching retirement age or for some other reason wants to sell the business. For many owners, the first option that comes to mind is a trade sale, but this can have drawbacks. They might be worried that a competitor would take the business over and gut it, or mismanage it. Or they might worry that a competitor might express interest, look over the books and confidential information, then decide not to buy.