Management Buy Out checklist
Participating in a company by means of a Management Buy Out is an attractive opportunity. The main advantage of a Management Buy Out purchase is that the purchasing party already has substantial knowledge about the business. Nevertheless, good preparation is still essential for the success of the transaction and the Management Buy Out checklist below can help with this.
The management Buy Out checklist
1. Formulate strategy and write business plan
Now the identity of the selling party is known, a strategy can be drawn up for the takeover process. Are you acting alone as the purchaser or together with several employees? In the latter case it is best to start by making clear agreements. What is your vision of the future for the business and does this match with the visions of your future partners? Another question that needs answering is what the legal structure will look like after the takeover and what agreements are to be made between the future partners themselves?
2. Approach the director and major shareholder
If you have received a proposal from the director and major shareholder to take over the company, you will probably have already held a few discussions on the matter. Things are different if you want to make a proposal to the director and major shareholder. It is advisable to start discussions in good time and to check whether the director and major shareholder is prepared to transfer the business, instead of surprising the director and major shareholder with a takeover proposal.
3. Market analysis and valuation
Before you can make a proposal, the value of the business has to be determined. When doing so, as much market information as possible has to be obtained in order to estimate the opportunities and threats of the takeover.
4. Negotiate with the director and major shareholder
Your boss becomes a party in the negotiations and he will have a different point of departure. This can create sensitivities. You should therefore ask an experienced adviser to help. During the negotiations the adviser acts as a buffer between you and the seller to ensure that the relationship between you both stays positive.
5. Due diligence investigation
As already mentioned, the benefit of a Management Buy Out is that the purchaser already knows the business. However, as the purchasing party you always have a duty to investigate the business. After all, you want to avoid any nasty surprises after the takeover. For that reason a due diligence investigation (audit) is also an aspect of the preparations in the case of a Management Buy Out transaction.
6. Financing
Financing is an important point to focus on during a takeover by means of a Management Buy Out. A Management Buy-out will often require bank financing, as well as venture capital from, for example, the selling party. The ultimate goal is that you, as the entrepreneur, obtain suitable financing for the takeover in conjunction with the best conditions possible.
7. Inform employees
The workforce must, of course, also be informed about the Management Buy Out. You should choose the right moment to do this. Above all, do not inform employees too soon in the process. There is always a chance that the takeover will not go ahead. As soon as the deal is definite, you can inform the employees about the plans for the future of the business and the main consequences for the workforce.
The above Management Buy Out checklist contains the most important points to consider. It is clear that a Management Buy Out is a unique process, mainly due to the relationship with already exists between the purchaser and the seller. We are familiar with all the factors can provide you with excellent advice during the entire process of the Management Buy Out. Please contact us to arrange an informal introductory meeting.