Nexus Financing
Artfully crafted deal

8 Steps to an Management Buyout

I recently attending an excellent presentation skills talk from Andy Bounds of Abnormal Results.  He offers is a free 37 minute consultation.  Why 37 minutes?.....well who would remember a free one hour consultation.  Everyone remembers the quirky 37 minute consultation.   

With that in mind I have come up with 8 steps to a successful Management Buyout.  37 would be far too many.  Why 8?  Why not?  A quick googling tells me that in numerology 8 represents hard work and lessons learned through experience, and more than any other number, eight seeks money and material success.  Doubt if I believe it, but it seems appropriate!

So here they are:

Step 1 - Assess the opportunity. Be confident in your decision and if you have any fundamental doubts about doing an MBO - don’t do it. You will typically have to invest the equivalent of one years gross salary in the deal. You can borrow this relatively easily, and can usually increase your salary to cover the interest costs; but you will still be expected to take the capital risk. This is generally thought to be the level at which you will be fully committed to the business but still able to sleep at night.

Step 2 – Assess the Viability of the deal - Work out how the business can grow and make money. You don’t have to have a growth plan to do an MBO but it certainly helps and will allow you to grow the value of your shareholding.

Step 3 - Create a credible business plan. This must have a good executive summary as financiers DO make quick decisions.  It should also show that you have a firm idea of what you will do once the deal is done. A good plan can form your initial budget for running the business, a poor one will sit on the shelf.

Step 4 - Reach agreement with the seller. Usually you will want to avoid doing this negotiation yourself as it can become fraught. It is useful to have an adviser to be the “bad guy” and negotiate on your behalf.

Step 5 - Raise finance. Whether its venture capital and banking, or just banking you should allow plenty of time to raise finance. This is about getting the right deal, but also you are selecting a business partner – especially if you are raising outside equity – and its important to go down the aisle with the right one.

Step 6 - Kick the tyres. Do some purposeful due diligence on the areas where you need financial comfort. This might be elements of the business you have not managed if the owner, or a group headquarters have handled some aspects of the company’s affairs. Your financiers will also want due diligence to support their process.

Step 7 - Close the deal. If all goes well you will be drinking champagne in the solicitors office. Enjoy it while you can, for now you will have to get down to the real work.

Step 8 - Build the company. It’s all yours now, if you have bought at the right price, properly funded its an opportunity to run your own ship, and build real value in your shares.

And of course get yourself a good adviser who has been through it before.



Great post Lake - quirky times do work well. Like starting meetings at 12mins (or 8 mins!) past the hour.

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