Management Buy-Out: how does it work and what does it entail?

A sale to one or more people from within the company is called a Management Buy-Out (MBO). The process is a bit more complex than a sale to an external buyer or an investor, simply because both business and personal interests are involved. Nevertheless, owners of SMEs increasingly opt for a transfer to a candidate from within the company.

How does a Management Buy-Out work?

If you have someone in mind to sell the business to, by means of a Management Buy-Out, the first thing to do of course is to sound out whether the interest is mutual. No doubt, you have discussed the viability of the plan and mutual expectations with your intended successor on several occasions. If you are all set to go, and there is mutual trust, the MBO process can start.

• Drafting a Letter of Intent, setting out the initial agreements;
• A proper inventory and analysis of the company, resulting in a reliable valuation;
• The intended buyer needs to arrange a bank loan, an investor or a vendor loan from the selling entrepreneur;
• The negotiating phase, with a good chance of a favourable outcome, since both parties know each other and indicated their intentions beforehand;
• In the purchase agreement, the final agreements are laid down, and when the document is signed by all parties, the transaction is finalised.

Let an acquisition advisor guide you

It goes without saying that you have full confidence in the Management Buy-Out; after all, you did not make this decision lightly and neither did your intended successor. Yet both of you have your own interests and emotions. To ensure that the atmosphere remains open and transparent, we recommend engaging an independent M&A specialist. At Marktlink you have come to the right place. Leave your contact details and we will get in touch.