MANAGEMENT “BUY OUTS”

Q: I am looking to retire and two of my managers have expressed an interest in buying the business. What is the process?

“Management buy outs” commonly known as “MBOS” is an attractive option for business owners who want to sell their businesses and for senior members of the business who want to become owners to develop and grow the business.

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Due diligence (“DD”) is an investigation carried out by the buyer(s) to review the assets, liabilities, business operations and commercial potential. Typically, the managers of the business will already have a good understanding of the business and any issues impacting the business. Consequently, the scope of the DD exercise is likely to be more limited than a standard sale process. The buyer is likely to focus on financial due diligence and key legal issues impacting the business such as property arrangements, material contracts, employment issues, regulatory requirements and any current disputes or litigation. However, if the MBO is being funded by a bank it is likely that a more detailed due diligence exercise will be required in order to satisfy the funder’s requirements.

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It is advisable for each party to instruct Solicitors to manage and oversee the transaction process and to conduct any sensitive negotiations or discussions that might arise. You will also need to instruct your accountant to advise on issues such as valuation, financial due diligence and tax implications.

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Selling your business to your managers should be an easier transaction to negotiate given that the buyers will know and understand the business. Also, an MBO should provide continuity to the business operations and ensure a seamless transfer for employees, customers and suppliers alike.

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You could explore the prospect of selling your business to another trade buyer who may be looking to expand or develop a presence in the region. A local competitor may also be interested in growing their business operations as well.

If you require any further information on the above, please contact Christopher Evans, a Director in our Corporate and Commercial team on

(01267) 493110 or via email cevans@morganlaroche.com