MBOs enable owner-managers in particular, to pass their business on to the team that helped to make it a success. This route helps to ensure business continuity and provides peace of mind for employees.
In very general terms, an effective MBO arrangement will enable the management team to acquire the company using a structure which will save them from having to raise all of the required finance personally and then repay the loan out of their own personal taxed income.
At taylorcocks, we have considerable experience of structuring, negotiating and implementing Management Buy-Outs. We can advise outgoing vendors and incoming MBO teams on all aspects of the buy-out, including financing, creating an appropriate MBO vehicle and liaising with HM Revenue and Customs.
MBOs can be complicated. They require careful planning as well as adequate support and assistance at every stage. Taylorcocks works with all stakeholders to ensure a mutually beneficial outcome for the parties and a swift conclusion to the deal.
Key benefits of MBOs
• The existing managers understand the business and already have experience of running it.
• Negotiations may be more straightforward, as the parties know each other, the MBO team may not need to ask so many questions and they are likely to be highly motivated to close the deal.
• With the right structure and agreement with the vendor, the MBO team may not need to raise all the finance personally and can avoid paying off the finance from personal taxed income.
Where there are no obvious successors or the existing managers do not wish to purchase the business, vendors may identify an external management team with same-sector expertise to effect a Management Buy-In. MBIs often involve the participation of a third-party investor to fund the deal.
MBIs can be more difficult to negotiate, both from the perspective of the vendor who will wish to minimise uncertainty for the existing workforce and from the MBI team, who will need to grasp a complete picture of an unfamiliar business in a short period of time.
Considerable care is required to ensure business continuity and a tax-efficient structure for all parties. As with MBOs, taylorcocks will work with all stakeholders to ensure a mutually beneficial outcome for the parties and a swift conclusion to the deal.
Key benefits of MBIs
• Outside investment can refresh a business and generate renewed growth.
• New management can bring additional expertise and a different perspective.
• The MBI team may have reputational strengths which encourage third party investors to finance the buy-in.
How taylorcocks can help
We can advise on all aspects of MBO and MBI transactions, including deal structure, future remuneration strategies and the tax implications for all parties. Selling a business is something that needs to be planned well in advance and executed with expert support.