A management buyout (MBO) can be a beneficial option for high-net-worth individuals (HNWIs), whether as part of a succession plan or as a strategic investment opportunity.
While MBOS are well established in the UK market, their suitability depends on careful structuring and financial planning.
For HNWIs, it is important to understand both the risks and rewards involved when deciding the future of your business.
What is an MBO?
An MBO occurs when a company’s existing management team acquires all or part of the business they run.
The transaction is typically funded through a combination of personal investment, external debt, private equity and vendor finance.
For HNWIs, an MBO often involves a greater personal capital contribution and access to specialist lending solutions, which can make the transaction more credible and flexible.
MBOs are commonly used where owners wish to exit gradually or preserve the culture of the business.
They can also help avoid the disruption and confidentiality risks associated with a trade sale.
Why are MBOs effective for HNWIs?
For HNWIs involved in management, an MBO provides an opportunity to turn expertise into ownership.
With a deep understanding of the business, MBOs are often well placed for growth and increasing value post-acquisition.
The ability to input personal capital can strengthen the deal and improve lender confidence and access to competitive finance.
From a seller’s perspective, selling to a trusted management team can provide reassurance that the business will remain in capable hands.
What are the risks and rewards of an MBO?
Despite the advantages, MBOs are not always straightforward transactions and HNWIs should assess if it is the most beneficial option for them.
The business must be capable of supporting the debt used to fund the acquisition and future cash flow forecasting must be realistic.
Overleveraging or poor forecasting can quickly undermine the effectiveness of a deal.
Decision-making and financial responsibility increase significantly post-completion and HNWIs must assess if an MBO is the right option not only for themselves but the business.
Is an MBO worth it?
When structured correctly, an MBO can be an effective approach to ownership or exit strategies for HNWIs.
With the right financial advice and a clear plan, HNWIs can receive long-term value from selling their business.
Specialist advice can help you assess whether an MBO is viable, provide independent valuations and ensure tax considerations are addressed from the outset.
For HNWIs, our expert team can help your transaction work alongside your wealth planning and protect your personal assets.
To learn more about management buyouts, speak to your usual Seymour Taylor representative or contact our team today enquiries@stca.co.uk 01494 552100