Back
Get in Touch Menu

Management buyouts back in fashion

28 May 2013

A management buyout (MBO) is a type of acquisition where a company’s existing managers acquire a large part or all, of the company.

MBOs are increasing in number again after a credit crunch related lull. While they may not all be on the scale of the $24 billion MBO recently undertaken by Michael Dell to regain control of Dell computers, they are a key category of corporate transaction.

Critical to any proposed MBO is funding. This can come from a range of funding providers including the company’s managers, banks, private equity investors or, increasingly, the vendor shareholders in the form of vendor loans. No matter how much goodwill there is between the parties, an MBO will not happen without funding.

Rigorous due diligence is still needed, regardless of the management’s knowledge of and involvement in the business. It is important that this process is conducted thoroughly. Some may not see the merit in meticulous due diligence if they have been involved in the management of the business for years, but external investors will always want to know what they are funding. Similarly, sellers may be reluctant to offer anything but the most basic of warranties on the basis that the management should know plenty about the company.

There are many legal factors to consider when proceeding with an MBO. Managers need to reconcile their participation with their existing duties as directors and employees. Conflicts of interest are likely and will need to be dealt with depending upon the individual circumstances. There are also likely to be significant tax ramifications which both sellers and purchasers need to be aware of.

Variations on a theme include a management buy-in (MBI), where a new management team is parachuted into the target company, and a vendor initiated management buyout (VIMBO), in which the vendor proactively promotes the sale of the company to management as part of an exit or retirement strategy.

Anyone thinking of taking part in an MBO should seek sound legal and accounting advice. Solicitors work closely with accountants to ensure that what can be a complex transaction is completed as smoothly as possible.

For more information please contact our corporate team. 

Contact us

Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Contact
Chris Wills LLB (Hons)
Partner
View profile
Related services
Share this article
Resources to help

Related articles

Three-season partnership with Gloucester Rugby announced

Corporate

We’re excited to announce our official partnership with Gloucester Rugby, which has been confirmed for the next three seasons. The partnership will include providing legal advice on commercial matters such…

Willans
Solicitors

Autumn budget 2024: insights on inheritance tax, farming relief and business ownership

Wills, trusts & probate

The autumn budget has brought about a number of changes, some of which relate to inheritance tax and agricultural and business property relief, as well as employers’ national insurance contributions…

Willans
Solicitors

Register of members: Why is it important?

Corporate

A register of members might not top the priority list in a business, but it could prove crucial if issues are encountered further down the line. Our corporate & commercial…

Helen Howes LLM
Senior associate, solicitor
Contact us