ON MANAGEMENT BUYOUTS

When the realisation dawns  that you have the opportunity to stage a management buyout, the first reaction of the team is likely to be euphoria, quickly followed by fear and panic. So… what should you do next?

Take a deep breath, get your attitude adjusted (if necessary!) and get organised quickly. The longer negotiations go on, the more likely it is that the deal will fail. Getting organised means getting the right team around you; which should include advisor or deal maker, accountant, and lawyer. These guys don’t come cheap, so from day one establish who will be paying their fees. Strictly speaking, you will be liable, but there are ways around this. For example, if your company has approached you, ask them to pick up the fees, or ask your advisors to work on a no deal-no fee basis. This can be a very good way of testing the robustness of the deal at a very early stage.

During the management buyout process, you are vulnerable. You are vulnerable because you want the deal to happen; it is your big opportunity and the temptation is to do the deal at any price, agreeing terms and conditions that could come back and bite you, and the business in years to come. Be prepared to walk away if it is not right for you or the business. You have a stronger negotiation position than you think. Get the best deal and you will be respected, but know when to stop.

Management buyout deals will defocus the management team away from business itself. So, from day one, decide who will focus on running the day to day business of the company, and who will be working with you on the business planning and the buyout process.

Perhaps the most important aspect of the deal for you will be to get the correct balance between personal “risk” and ultimate “reward”. Whilst success of management buyouts is very high compared to new start-ups, risk only what you are willing to lose.


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