PKF Australia

Accountants and Business Advisers

Make the next step the right one for your business

Make the next step the right one for your business

Posted 03 Apr 13 by Allan Farrar

As business owners ponder where they will take their business in the long term, many factors come into play in determining which direction will be right for them.

After perhaps many years spent growing a business, the decision can be daunting and is indeed a critical one. Owners have many options available to them and, depending on their desired outcome; a management buy-out (MBO) could be an attractive choice.

An MBO involves a group of senior managers acquiring an existing owners' interest in a company or business.

Due to the often high purchase price or value of the business, the management group will usually require financial help to buy the business, which may be sourced from the private equity sector, bank debt or vendor finance.

An MBO is a great option for owners, particularly in the current challenging market conditions with decreased genuine buyers, and buyers facing difficulty securing finance. Added to this, the expected increase in acquisition opportunities as a flood of "baby-boomer" businesses are put to market will also create a glut of businesses for sale and boost competition for securing genuine buyers.

Selling to an established management team provides owners with confidence that the integrity, values, and reputation that they poured so much time, effort and money into establishing will be upheld. An MBO will also provide security for the business' employees and overall, reduce the risk of failure, adding further peace of mind to the exiting owner and the purchasers. Other key benefits include:

  • Increased wealth and financial reward for managers' efforts in the business;
  • Confidence for existing owners and stakeholders that the business is in "safe hands";
  • Management's "inside knowledge" reducing the risk of failure post transaction;
  • The alignment of management's interests with those of financiers;
  • Flexibility for the current owners to have a staged exit from the business and provide a liquidity event;
  • No need to market the business , thus decreasing uncertainty for customers, employees, suppliers and other stakeholders, and avoiding the need to release confidential information to competitors;
  • The opportunity for management to take over an established business with which they are familiar, rather than acquiring a competitor or commencing on a start-up path; and
  • Reduced transition and integration issues compared to an acquisition by an external party.

Effective planning as well as open communication between the owners and managers is critical in the execution of a successful MBO for all parties.

Whether it is an MBO, trade sale or public listing, business owners should be planning for succession as early as possible. Early planning will ensure that a business is in its best possible shape to maximise value and its attractiveness to potential acquirers. Being prepared is the best way to ensure a successful exit for owners.


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