A management buyout (MBO) can prove the perfect solution for both the buyers and sellers of a company. Not only does it offer employees a smooth transition by maintaining company culture, but it also reassures those exiting the business that it’s being left in safe hands. For the MBO team, meanwhile, it’s a prime opportunity to take ownership and drive the company forward.
Management buyouts are not without their challenges, however. There are plenty of pros and cons to weigh up, tax implications to consider, and the deal structure itself needs formulating carefully. Moreover, any management buyout needs a substantial sum of money to cover acquisition costs. It can be hard to find these funds, particularly through traditional sources like a high street bank.
Digital lender Fleximize takes an alternative approach to business loans by helping SMEs access affordable finance on flexible terms. Read on for further information about MBOs, how they work, and how to apply with Fleximize.
What is a management buyout?
A management buyout 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. The sale of a business to an external company, on the other hand, is referred to as a management buy-in.
The reasons for an MBO vary, but a common one is the retirement of an owner, which can lead to other directors or employees assuming control of the business. Alternatively, a large company may 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 company from the remnants of an old one.
The challenges of funding a management buyout
One of the main challenges faced by MBO teams is raising finance. To overcome this obstacle, many businesses will consider approaching a private equity firm. While there are many advantages to this option, it does involve giving up shares to an investor, which can incite opposition from management.
To avoid significantly diluting the management’s ownership, a combination of equity investment, personal capital, and debt finance could be the ideal solution. A business loan, for example, can be used to fund the whole buyout or simply a portion of it without relinquishing control over the company.
Management buyout loans are widely available from a range of sources, including banks and alternative lenders. Many providers, particularly in the traditional finance market, will scrutinize every shareholder's personal circumstances more closely than for other funding purposes, such as cash flow.
A lender might look at personal credit files, the net worth of each individual, and the financial investment they’ve committed personally before approving a loan. In many cases, borrowers will also need to provide personal or company assets as collateral. As a result, securing funding often causes delays in the buyout process.
Management buyouts: The advantages and disadvantages
When implementing a management buyout, it’s crucial to weigh up the pros and cons. There are many financial implications, like the price of completing the deal, as well as impacts on company culture to consider.
- The management team is already familiar with the business, making for a smoother transition.
- The details of the deal will remain in-house and confidential.
- Any due diligence required by finance providers can be processed more quickly.
- The shift from employee to company owner can be difficult for the management team and other staff.
- If using finance from external investors, it may be necessary to relinquish some control of the company.
- Existing relationships between the management team and business owner can make it hard to navigate delicate negotiations.
Management buyout finance from Fleximize
Management buyout funding from Fleximize can provide the capital you need on terms that suit you. We offer both unsecured and secured options across our Flexiloan and Flexiloan Lite products – head to our business loans page for more information. Meanwhile, here’s a quick summary of what we offer:
- Business loans of £5,000 – £500,000 over 3 – 48 months
- Interest rates starting from 0.9% per month
- 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 through our Member Marketplace
At Fleximize, we understand that MBOs can be stressful, and the last thing you need is extra paperwork. That’s why we’ve kept our online application quick and easy. You’ll also receive the funds in as little as 24 hours once approved, making our loan products the perfect choice for getting an MBO over the line.
Check your eligibility for management buyout finance
Our lending criteria is set to accommodate as many small businesses as possible, but there are a few basic requirements that each applicant needs to meet. These include:
- Businesses must be registered in the UK with Companies House.
- Your company must have been trading for at least six months with a minimum monthly turnover of £5,000.
- Businesses based in Northern Ireland and Scotland can apply for up to £250,000.
- For non-homeowners, we can offer funding of up to £20,000.
All applications that meet our basic eligibility criteria will be assessed on a case-by-case basis. Even if your credit score could be improved, it’s not the only factor we’ll take into account.
How much does management buyout finance cost?
Our interest rates start from 0.9% a month. There are no hidden fees for you to worry about, and our Penalty-Free Promise means you can reduce how much interest you owe if you settle early.
Every management buyout setup is unique. Therefore, your funding package must be tailored to meet your specific needs as a buyer. If you’d like to receive a precise quote for your business, give us a call on 020 7100 0110. Alternatively, our business loan calculator can provide an estimate of how much your loan may cost.
Why choose Fleximize for your management buyout funding?
We’ve helped thousands of customers access the funding they need. Here’s what you can expect when you come to us:
- Flexible: Top-ups, repayment holidays, and our Penalty-Free Promise mean you can build a package that suits you, even if your business needs change over time.
- Fuss-free: Applying for management buyout finance takes just a few minutes with our quick online form, and you could receive your funds within 24 hours.
- Trusted: Our ‘Excellent’ Trustpilot rating and glowing testimonials show how highly our customers value what we do for them.
- Personal: You’ll be assigned a dedicated relationship manager to ensure you get the best financial solution for your business. They’ll also be there for you if you return for repeat funding.
- Award-winning: We’ve twice been named Best Business Finance Provider at the British Bank Awards. Visit the Fleximize awards page to learn about our other industry prizes.
How our management buyout finance has helped others
Fleximize has provided the funding for numerous 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.
Danny Bloomfield used a Fleximize loan to buy out his business partner
Apply for management buyout funding today
We've made it easy to apply for a business loan; simply fill out our quick online form to get started. Unlike other lenders, we only ask for basic information about your business and a few supporting documents, so you can apply in a matter of minutes.
Once you pass our initial checks, your relationship manager will be in touch to guide you through the remainder of the process. And, if approved, you could receive your funds the very same day.