There are a number of factors associated with a management buyout that is successfully completed, ranging from issues regarding the current ownership to the prospective success of both the new management team and the company itself.
Firstly there must be a good record of profitability over a period of time, leading on to a good prospect of future earning potential for the business without their being high risks involved.
Within the potential new management team there has to be commitment to see through a buyout and a collection of good skill sets throughout the entire team to ensure that any future plans are covered.
Alongside this there must also be a vendor who is willing to explore the sale of a business to the management team. One of the risks involved with a management buyout can be the uncertainty an owner feels about his management. You do not want to put at risk your employment status by misjudging the owner of your business. Plans can also be affected by a structure of the sale regarding price and funding.
Of the upmost importance is the strength of character, unity and available skills of the management team seeking to acquire the business. In order to gain the trust of both the vendor and potential funders, you must be able to demonstrate sound business acumen, a wealth of experience and contacts, and a clear vision of how you see the company moving forward.
It is imperative that each individual member is used to utilise their expertise and that all the pieces come together to form the perfect team. Without this trust between each other, how can you expect the vendor and your funders to have faith that this will be a successful venture. Management buyouts should mean that the new team already have the experience of running the company on a day to day basis and already have strong contacts with both clients and suppliers.
The vendor is obviously key to you successfully completing a management buyout. If you have established a good working relationship it can sometimes make the difference and put you in pole position, ahead of potential corporate buyers that could pay a higher price for the business.
If this has been achieved a vendor will most likely have agreed to defer some of the purchase price in order to have made a management buyout deal possible.
A management buyout may appear to become less feasible when you consider a number of high risk factors:
They are just mere obstacles, as the majority of management buyouts are actually successful. The positives far outweigh potential risks in the majority of cases as existing management teams have the know-how, stature and relationship with the company’s employees and clients in order to ensure a successful transition.