Top 10 Tips for Management Buy-Outs (MBOs)

1.       Enlist the help of a team of professionals from the outset – solicitors, accountants and financial advisors. Ensuring you receive guidance from the start of the transaction will put you in a stronger position and prevent potential mistakes from occurring.
2.       Develop an idea as to what type of finance you need – this will usually be debt finance, equity finance or both. Your professional advisors will help you figure out what is required, and this will form a framework within which to work going forward.
3.       ‘The Conflict’. Ensure the MBO doesn’t become a distraction from your usual line of work within the business. Preparing  for an MBO will take time and effort, but try to keep this separate from your everyday role; you don’t want the business taking a hit when you are trying to source funders and, ultimately, you need to continue complying with any director’s duties imposed on you by law. Sections 171 to 177 of the Companies Act 2006 include various duties, including the duty to promote the success of the company and the duty to exercise reasonable care, skill and diligence. Simultaneously, you should be looking to create a more valuable company so that you can sell the concept of the MBO to any potential funders and be a part of that success in the future. It is essential to strike the balance between the company’s interests and your own interests, but your professional advisors will be there to assist.
4.       Create shareholders’ agreements with the assistance of your solicitor. Although the MBO is a positive step forward with your fellow MBO team, it is always essential to prepare for difficulties further down the line, and shareholders agreements will provide solutions to ‘what if?’ questions. Think of a shareholder’s agreement as the business equivalent of a marriage pre-nup.  
5.       Set a time-frame within which to complete various stages of the MBO so you have an idea of what you’re working towards. At the same time, don’t make an unrealistic timescale – MBOs can require a lot of meetings, discussions, drafting and negotiating so they won’t happen overnight.