MBOs seem to be more popular again with business owners who are looking to exit.
Funding options are improving, making this route more viable again – but there are risks.
Here’s where I’ve seen MBOs fall down…
Departing owners overestimating the management team. There’s a big difference between being a safe pair of hands operationally and having the entrepreneurial vision needed to take the business to the next level. If your payout has a deferred element, make sure you have the best team in place, with the right support around them, long after you exit.
New owners being unable to adapt to rapidly changing market conditions. Unless you live in a cave, you know that the world changes in an instant. Disruption of all kinds, health issues, wars, staff problems and ‘black swans’ regularly come out of leftfield. It’s very easy for new owners to get caught like a rabbit in the headlights. That can spell disaster.
MBOs often involve taking on substantial debt to finance the acquisition. A miscalculation can risk both your payout and the overall financial health of the company. And remember, an excessive debt burden may not always seem excessive, simply by looking at a spreadsheet and conducting basic due dligence.
Don’t get me wrong. MBOs can provide business owners with a really effective route to exit, but they do require very careful upfront planning.
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