Is an MBO feasible?

Factors necessary for successful MBO

The factors necessary for a successful management buyout (“MBO”) include:

  • A good track record of profitability.
  • A strong committed management team with a good spread of skills.
  • A vendor who is willing to explore a sale to the management team. If it is not clear how the owner feels then the team members should proceed carefully to avoid any risk to their continuing employment.
  • A vendor who will accept a realistic price and a fundable deal structure.
  • Good future prospects for the business without high risk factors.

Importance of a co-operative vendor

The vendors’ preferred exit route may be to sell to management rather than to make approaches to potential corporate buyers, even though corporate buyers could well be best placed to pay the highest price for the business.

A sale to management may be preferred for a variety of reasons, for example the number of potential trade purchasers for the business may be limited, the vendors may be nervous about approaching competitors and disclosing sensitive information or they may feel strongly that their business and its staff carry on independently in what they confidently believe to be “safe hands”.

For a buyout to be successful, vendors must be willing to sell the business at a realistic price and with a fundable deal structure. This almost always means that the vendors must agree to defer some of the purchase price (“Consideration”).

What are high risk factors?

There are a number of risk factors which when present may make a management buyout more difficult. For example, the imminent retirement of senior management, customer dependence issues (such as one customer accounting for 80% of turnover), new competition or new technology (which could threaten the longevity of the business). Such risk factors do not necessarily mean that an MBO is not possible, but they need to be fully considered at an early stage as funders will only support the transaction if they are satisfied that there is a viable business for many years.

The backing of funders is unlikely to be achieved unless risk factors such as those outlined above are minimal or the management team can clearly demonstrate that specific risks can be substantially mitigated.

It may be comforting for prospective buyout teams to know that the success rate of buyouts is, relatively speaking, quite high because the management team is so familiar with the business and in many cases is already running it for the owners.

What makes a strong MBO team?

The strength of the management wishing to carry out a buyout is a critical factor in contemplating the potential future success of the business. Consequently funders pay close attention to the skills, experience, knowledge, contacts and credibility of the buyout team as well as their vision for taking the business forward.

A strong MBO team has a well diversified skill set and individual members should have a good level of experience in their own particular field of expertise. Ideally the management carrying out the buyout may already have been running the business on a day to day basis with little or no help or involvement from the vendors and be responsible for maintaining the key business relationships with customers and suppliers.

Our MBO feasibility review service

Our Management Buyout (MBO) Feasibility Review gives company owners and management teams a good understanding of what is achievable.

The review draws on our experience of having advised on numerous MBOs, advising both management teams and vendors, and our knowledge of the current funding appetites of banks and other lenders.

Our MBO Feasibility Review encompasses:

a. An independent valuation of a company, which we carry out by:

  • Reviewing current and historical financial information about the business;
  • Reviewing publicly available information about it, such as press articles;
  • Discussing the business in detail with the shareholders and / or management team;
  • Looking at deal activity involving similar companies so we understand what buyers are paying for similar companies and why.

b. The types of funding available for such a deal;

c. The likely deal price and structure, including whether the current owners will need to contribute an element of deferred consideration to support the transaction.

d. As part of our MBO review, we can also assess levels of company transaction activity in a particular sector in order to gauge how much interest there would be if the company were to be marketed to prospective trade buyers. This might be particularly beneficial to a shareholder wishing to compare different exit routes.

e. An overall assessment of the feasibility of an MBO (comparing it to a trade sale, if appropriate) including suggested deal value, structure and funding requirements.

Our comprehensive MBO Feasibility Review is informative to both the management team and the exiting shareholders and ensures an MBO is only embarked upon if there is a realistic prospect of a deal being achieved.


Every business is different and you may not be sure whether an MBO will be feasible.

A confidential discussion of your specific circumstances with an experienced member of our team might help to clarify things for you.

One of our team would be very happy to call you to give you an indicative view on the feasibility of an MBO and suggest the next steps. The discussion would be free of charge, strictly confidential and without any further obligation to use our services.

If you would like us to call, please complete the form below:

Factors necessary for a successful MBO

The factors necessary for a successful buyout include:

  • A good track record of profitability.
  • A strong committed buyout team with a good spread of skills.
  • A co-operative vendor who is willing to sell to management.
  • A vendor who will accept a realistic price and a fundable deal structure.
  • Good future prospects for the business without high risk factors.