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Durufle, Shubert, and Pirates

Succession by Management Buyout

Securing succession is a big issue for all business owners.  One could sell to a trade buyer, but a Succession Buyout (I suppose this is an SBO but I feel there are too many three letter acronyms in this business already) is an increasingly viable and popular alternative.  This involves selling to the rest of the management team.  Here's five reasons why you should consider one.

  1. You'd like your successful independent business to continue beyond your retirement.  This is most likely if you sell to your team.  A trade sale might lead to big changes in the company.
  2. Tax efficiency; the deal can be structured to mitigate your tax liabilities, and can be tax beneficial to the MBO team.
  3. Rewarding management.   You've worked with them for ages and you want to give them their chance.
  4. Customisation: as a “friendly” deal it can be tailored closely to your personal objectives.  You could for example withdraw from the business in stages both financially and operationally.   
  5. Funding, finance for SBOs (oops sorry used the acronym) is available from banks and equity providers.  Vendor finance often forms a significant part of the funding if the vendor is to retain some involvement in the business for a period.

Is your business suitable for a Succession Buyout?  Provided it is profitable, and you can reach a suitable valuation, the answer is probably yes.    As you will see from my last post we have just completed a succession buyout, and we have two more in the pipeline.

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