Succession planning:  Management Buy Out
Jon Huggins, Advisory Manager

You’ve spent years building up your business, experiencing good times, bad times and everything in between.  However, you’ve now decided that it’s time for a change, either to move on to a new challenge, fulfil another ambition or even to enjoy a different pace of life – but what are the options for selling your business and where should you start?

Firstly, you need to ask yourself what would you like to achieve from the exit – would you like to stay involved in the business, in a lesser capacity, move away over time or have a clean break?  For many, that’s the most difficult decision to make, but the earlier you start thinking and planning for it, the more straightforward the process will be.

We work with many clients who speak to us about this initial decision-making process and we explore the options with them. For others, they have already decided the route they want to take; and we’ll pick up with them as their advisers at that point.

If that decision is a clean break and to leave the business, then there’s three main options:

  • Management Buy Out
  • Trade sale
  • Voluntary liquidation

In this advice blog, we’ll focus on a Management Buy Out.

Management Buy Out

One of the main considerations for a Management Buy Out (MBO) to be a possibility is having a strong management team in place to be able to take on the business.  If this is the case, then there’s different levels of MBO to explore, depending on how long you’d like an involvement in the business for and whether you’d like to maintain any interest in the future.

Full MBO

Management team takes full ownership at the time of the transaction which provides a clean break for the business owner, meaning they have no exposure to the future performance of the business.

This MBO requires the largest amount of funding and careful consideration and planning is to be required.

Partial MBO

As the business owner, you retain a minority stake in the business and continue to receive dividends. This structure reduces the initial funding required by the management team and gives the business owner the opportunity to participate in the future growth of the business.

Split MBO

One or more shareholders dispose of their shares immediately, leaving any remaining shareholders with a majority shareholding (for an agreed period of time) and the management team with a minority shareholding. The management team would complete a second MBO at a later date to acquire the remaining shareholders share

EMI scheme

In this scenario, you keep control of the business, but you grant qualifying share options to the management team.  This can be used to incentivise management to drive growth and subsequently share in the benefits in a tax-efficient way.

If you don’t have a management team in place who wants – or is able – to take part in a MBO or EMI, then you should explore other options for selling the business, such as a trade sale or voluntary liquidation.

If you’d like any further details or to discuss a potential MBO, please do contact us and our Advisory team will be happy to help you.  There’s also a succession planning episode of our 2 + 2 podcast, with more advice and tips about taking a step back from your business.

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