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A Look at Management Buyout Acquisition (MBO)


Company acquisitions are fairly commonplace these days, and with increasing globalization, a good number of these deals are cross-border transactions. Although many acquisitions usually involve a large company buying a somewhat smaller company, there are quite a few ways to structure these kinds of deals. One type of acquisition that tends to be a bit faster and smoother than other types is a management buyout acquisition, usually called an MBO. This sort of acquisition may not be available or feasible for some companies, as there simply may not be a management team able or willing to take on this kind of situation. However, MBOs certainly have a number of advantages, as explained below.

Easy Exit

Growing a business is exciting for many entrepreneurs, but getting to a point where it is lucrative to sell that business is often equally exciting. In fact, many business owners will attest that they start their business with the endgame in mind. The leadership’s desired exit strategy will depend on a number of factors, but taking a private company public or selling to a strategic buyer willing to pay top dollar are often the favorite ways to go. Finding an interested buyer, receiving an attractive offer, and actually closing the deal are very different things, and getting all three to occur under the right circumstances can actually be quite difficult to achieve.

In light of this, it is sometimes wise to engage in an MBO, as this allows the company’s primary management team to take over the business. In this type of acquisition, the management team is already familiar with the business, including its valuation, financial status, and future potential. Granted, there may still be some financing and due diligence matters to navigate, but it is generally a far more streamlined process as compared to an arm’s length transaction. Thus, the owners can likely exit relatively quickly and easily and for a fair price.

Smooth Transition

Of course, in addition to helping fast track the actual deal process, an MBO normally entails a smoother transition. The management team already understands the company, knows many of the employees, and is aware of existing weaknesses and needs for improvement. As a result, the staff will likely feel at ease that things are not going to change drastically, as would likely be the case with an entirely new leadership team who did not have any existing ties. This should prevent morale erosion or operational disruptions. Similarly, a company’s client list and other business partners should also feel comfortable sticking around.

Reinvigoration yet Continuity

Another great aspect of an MBO is that it can simultaneously offer the reinvigoration that a business needs, along with some of the continuity that its employees and clients likely desire. Acquisitions clearly occur for strategic reasons, and the joining of forces allows for the combination and exploitation of different resources, which automatically breathes new life into the venture. The incorporation of new product lines or technology may augment a company’s existing infrastructure and provide for new opportunities. But, this does not necessarily mean that a company has to displace what it already has going for it.

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