A management buyout (MBO) is a term used to describe the acquisition of a company by internal personnel, whether it’s existing management, non-executive directors or even employees.
A management buyout differs from a management buy-in (MBI), which describes the acquisition of a business by another company and the replacement of the management team by an external party.
The reasons for an MBO vary, but a common one is the retirement of a business owner, which can lead to other directors or employees buying them out to take the business forward.
Alternatively, a large company might decide to split into smaller parts, with regional managers taking over – or “buying out” – their own unit of the business. Finally, an MBO may be initiated to rescue a business from failure, or to build a new business from the remnants of an old one.
Funding a management buyout
One of the main challenges faced by MBO teams is raising the corporate finance needed to purchase the company. If the management team is comprised of existing shareholders, they may consider applying for a business loan, whether from a bank, private equity firm or specialist online lender. This could be used to fund the whole buyout, or simply a portion of it, with the remainder funded using personal capital or even equity finance.
However, a management team might be reluctant to fund an MBO using private equity, as it will mean diluting their ownership of the company. That’s why a mix of personal funds and debt finance might be the ideal solution, allowing for the retention of equity while spreading all or some of the cost over several months or years.
While many lenders do provide funding for the MBO process, the personal circumstances of everyone involved may be scrutinized more closely than if the funding was for another purpose, such as business cash flow.
A lender might look at personal credit files, the net worth of each individual, and the amount they’re personally committing to the MBO as part of its due diligence process. Borrowers should also prepare to provide personal guarantees as a means of securing the funding.
MBO finance from Fleximize
Fleximize has provided the funding for several management buyouts and buy-ins. In the video below, Danny Bloomfield, franchisee for Premier Education Group, explains why he chose Fleximize to help him buy out his business partner. You can read his full funding story here.
Danny Bloomfield used a Fleximize loan to buy out his business partner
A flexible funding solution
At Fleximize, we don’t believe in ‘computer says no’ algorithms. Every business that meets our basic eligibility criteria will be assessed by one of our underwriters, with approval and funding usually delivered in as little as 24 hours. This speed can be crucial for companies looking to get that MBO over the line. Here’s a summary of what we offer:
- Business loans of £5,000 – £500,000
- Unsecured and secured borrowing options
- Flexible repayment terms of 3 – 48 months
- Speedy application with minimal paperwork
- Approval and deposit in as little as 24 hours
- No hidden fees or early-repayment penalties
- Interest charged on a reducing balance, not the total loan amount
- Repayment holidays and top-ups available with all loans
- Exclusive discounts on industry-leading business services
To apply for a Fleximize loan, fill out our short online application form. Assuming you pass our initial checks, one of our relationship managers will be in touch to guide you through the remainder of the process.