Name: Management Buyout (MBO) Funding
Brand: Fleximize
Rating: 4.9 (1034 reviews)

What is management buyout (MBO) funding?

A management buyout (MBO) is when a company's management team buys out the business from its current owners.

This type of funding can be a great option for owners who want to retire or step away from the business, while still ensuring its continued success. If you are a business owner considering an MBO, or if you are part of a management team looking to take control, this article will help explain the process, the benefits, and how to finance an MBO.

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What is a management buyout (MBO)?

A management buyout (MBO) is a transaction where the existing management team of a company buys the company from its owners. This process gives the management team full control of the company, which is often a great opportunity for them to grow the business further.

So, what is an MBO in simple terms? It’s when the people already running the business, often the senior managers, buy the company. This can happen for several reasons, such as the owner retiring, wanting to sell the business, or management seeing an opportunity to take the company in a new direction.

In the UK, management buyouts have become a popular way for businesses to transition ownership. In fact, many big companies have undergone MBOs to secure their future. One famous management buyout example is New Look, a UK fashion retailer, which was bought by its management team.

Why choose a management buyout?

There are many reasons why a company might choose an MBO as an option:

An MBO allows for a smooth transition of ownership. The management team already knows the business inside out, so they can continue operations with minimal disruption.
For business owners looking to retire or exit, an MBO offers a way to hand over the reins to trusted leaders within the company.
For the management team, a management buyout provides greater control over the business's future direction.

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MBO vs. LBO: What’s the difference?

You may have heard the term leveraged buyout (LBO) as well. Both MBOs and LBOs involve a similar concept: buying a company using debt financing. However, there is a key difference:

An LBO is typically when an external buyer, often a private equity firm, buys a company using a combination of debt and equity. In an LBO, the management team may or may not be involved.
An MBO is a type of LBO, but it specifically refers to the company’s management buying out the business. In this case, the management team takes on the role of the buyer.

How does a management buyout work?

Here’s a step-by-step breakdown of how a management buyout typically works:

1. Identifying the opportunity:

The first step in an MBO is recognising the opportunity. A business owner may want to sell the business, and the management team sees an opportunity to take ownership. Alternatively, the management team may approach the owner with a proposal for an MBO.

2. Agreeing on terms

Once the idea of an MBO is on the table, the current owner and management team must agree on the terms of the buyout. This involves deciding on the price and the structure of the deal.

3. Valuing the business

Before moving forward, the business will need to be valued. This is often done with the help of an external advisor or valuation expert. The valuation will help both parties understand the true worth of the company.

4. Arranging management buyout finance

Financing a management buyout is one of the most important steps. The management team will need to secure funding to purchase the company. This could come from a variety of sources, including:

Bank loans
Private equity
Vendor financing
Personal savings
Alternative finance

The key here is finding the right financing structure that works for both the buyer and the seller.

5. Structuring the deal

Once financing is secured, the deal will need to be structured legally and financially. This involves drafting contracts, making sure the deal complies with regulations, and finalising the financing details.

6. Closing the deal

Once all terms are agreed upon and the financing is secured, the final step is closing the deal. This is when the ownership of the business officially changes hands.

How to finance an MBO

One of the most important aspects of an MBO is securing the right MBO financing. There are several ways to fund an MBO, including:

Bank loans

Traditional bank loans are often used for MBO funding. These loans typically require the management team to provide collateral, such as personal guarantees or assets of the business.

Private equity

Private equity firms provide funding in exchange for a share of the business. This can be a good option if the management team does not have enough capital to fund the buyout on their own.

Vendor financing

In some cases, the seller may offer vendor financing, which allows the management team to make payments over time. This reduces the upfront costs and makes the deal more affordable.

Personal capital

The management team may also use their own money or capital to fund the buyout. This can be a good way to show commitment to the success of the company.

Alternative finance

Altfi is an increasingly popular option for MBO financing. Alternative finance providers, like Fleximize, can offer flexible, fast financing solutions that don’t share the same strict loan criteria of traditional banks. Altfi options include peer-to-peer lending, business loans, and other innovative lending models that cater to businesses looking for more accessible or customised financing solutions.

Flexiloan Flexiloan Lite

Our Flexiloan product is available to businesses trading for at least 12 months over a 12-60 month term.

months

Interest

£8,460.08

Total Repayment Amount

£58,460.08

Monthly Repayment

£3,247.78

Show potential savings through early settlement

Our Penalty-Free Promise means you won’t be charged extra for repaying early.

Find out just how much you could save through early settlement by adjusting the month of repayment in this section.

Your Loan Quote Summary
Full Settlement At
Total Repayable at Agreed Term	£58,460.08
Total Repayable if Repaid Early	£56,122.84
Interest Saving	£2,337.25

* Interest rates offered to new customers may vary from rates advertised due to variations in the Bank of England base rate and/or Standard Overnight Index Average (SONIA).

This estimate is based on a monthly interest rate of 1.70%, which may not reflect your final rate. Please apply online for a tailored quotation.

A representative example of a loan of less than £25,000: 42.4% APR representative, based on a fixed annual rate of interest of 35.9% and an assumed loan amount of £15,000 over 18 months; equating to monthly repayments of £1,089.71 and a total repayable of £19,614.78.

Our Flexiloan Lite product is available to businesses trading for at least 6 months over a 3-12 month term.

months

Interest

£3,472.16

Total Repayment Amount

£33,472.16

Monthly Repayment

£4,184.02

Show potential savings through early settlement

Fleximize is committed to its penalty-free promise for customers repaying early.

Find out just how much you could save through early settlement by adjusting the month of repayment in this section.

Your Loan Quote Summary
Full Settlement At
Total Repayable at Agreed Term	£33,472.16
Total Repayable if Repaid Early	£32,476.26
Interest Saving	£995.90

* Interest rates offered to new customers may vary from rates advertised due to variations in the Bank of England base rate and/or Standard Overnight Index Average (SONIA).

This estimate is based on a monthly interest rate of 2.50%, which may not reflect your final rate. Please apply online for a tailored quotation.

The benefits of a management buyout

There are several reasons why an MBO can be a good choice:

The management team takes full control over the business, which allows them to implement their vision for growth and change.
For the business owner, an MBO provides a smooth and secure way to exit the business while ensuring the future success of the company.
Since the management team already knows the business, they can preserve its culture, values, and goals.

The drawbacks of a management buyout

However, management buyouts come with their challenges:

The management team may need to take on a significant amount of debt to finance the buyout, which can be a financial burden.
Securing enough financing for an MBO can be difficult, especially for smaller businesses.
The process of transitioning ownership can sometimes cause stress and strain between the current owner and the management team.

What are the tax implications of an MBO?

Tax considerations are an important part of any management buyout. These can include:

Capital Gains Tax: The seller may need to pay capital gains tax on the sale of the business.
Tax relief: Buyers may be able to take advantage of tax reliefs or incentives, depending on how the MBO is structured.
Financing structure: The way the MBO is financed may also have tax implications.

It’s vital to consult with tax professionals to understand the full tax impact of an MBO.

A management buyout can be a great way to transition ownership of a business while ensuring its continued growth and success. However, it requires careful planning, the right MBO financing, and professional advice to navigate the complexities of the process. Whether you're an owner considering an MBO or a member of a management team looking to buy out your business, understanding the ins and outs of the process can help you make informed decisions.

If you’re ready to explore management buyout funding, or if you'd like some guidance on the financing options available, we're here to help you find the best solution for your needs. Simply complete our short online application form with a few basic details to get started.

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