Why 2016 heralds the rise of the MBO

Personal legacy is an important concern for business owners, and market changes have signalled a significant rise in the frequency of Management Buy-Outs (MBOs). 

With this in mind, forming an exit strategy is not something that should be taken lightly and according to research by the Centre for Management Buy-out and Private Equity Research (CMBOR), the value and volume of MBOs has continued to increase over the last year.

Succession planning for many businesses can be complex and planning can pay dividends when trying to find the right person or people to take responsibility. However, in depth analysis of what the business truly needs should come before anyone is tipped to take on the role.

Read more about conducting an MBO:

• What core materials are needed to manufacture a successful MBO?
• How and why to do an MBO
• Five keys to post-MBO success

Increasingly, the benefits of MBOs over other exit strategies are a becoming more appealing for businesses for the following reasons.

Keeping control 

Business owners can control the MBO process, in particular timings, to ensure that the transition moves at a comfortable pace. Additionally, controlling who is privy to exit route conversations can ensure that confidentiality of market sensitive information is kept to a minimum.

Loyalty 

Having the ability to reward key management who have previously helped the business realise its growth ambitions can help the predecessor to leave and protect their legacy.

Flexibility 

MBOs can be far more flexible than other exit strategy alternatives. Business owners are able to sell a part or keep control of the ownership while still being able to grow and influence the business.

Knowledge and speed 

Due to the buyer’s previous involvement, the transition process can be far less stressful due to previous knowledge of the business and this ensures a smooth and efficient process.

No matter which exit strategy is adopted, communication is key. This applies to notifying employees well in advance of any changes, and making final decisions transparent will help to reduce any uncertainty and safeguard business continuity.

Before you put your business up for sale, however, consider whether you really should undergo an MBO.

Duncan James is corporate partner at Shakespeare Martineau.

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