The purchase of a company, division, business unit or subsidiary by a management team is typically referred to as a management buyout (MBO). Management led buyout transactions have been successfully executed at thousands of companies since the mid-sixties. Although MBO transactions compete with the more common strategic or financial acquisitions by corporations or private equity groups, they often are the most viable option for company shareholders. Periculum’s principals have completed more than 20 successful MBO transactions, and if you’re thinking about acquiring your company, we can assist you with the evaluation of the feasibility of the transaction.

The Buyout Opportunity

Increasingly, managers and key employees have come to expect ownership positions through various approaches such as stock option plans and other incentive programs to align management with the interests of the shareholders. Often managers decide that they want an even greater equity interest in order to have more control of the company, and ultimately, their own destinies. An MBO transaction allows them to purchase the company or business which they have worked hard to build.

Management buyouts are most commonly initiated by business owners or the management team. Business owners and their Board members may realize that selling their company or division may be most effectively accomplished through a sale to management. In such cases, they may assist a management team buyout effort through a privately negotiated sale or a private auction of the company. More commonly, the senior management team will initiate the buyout by approaching the company’s Board. In these cases the feasibility of the transaction must be assessed and a third party or investment banker is usually brought in to examine the financial position of the stakeholders to see if a transaction is possible.

Management Buyout Financing Structure

All MBO’s are financed with a combination of senior debt, subordinated debt and equity. Occasionally the use of an Employee Stock Ownership Plan (ESOP) is appropriate. When advising on an MBO transaction, Periculum helps its clients assess the amount of equity which would be required to get an MBO transaction done. This is usually done by determining the debt capacity of the company.

Getting Your Buyout Done

Periculum’s significant transaction experience combined with our exceptional knowledge of corporate finance and the debt markets enables us to assist and advise management throughout the entire MBO process. From determining the feasibility of the potential transaction to negotiating, structuring, and raising the most cost effective capital, our professionals will be an invaluable and value-added resource every step of the way.

Likewise, your personal capital should not limit your thinking about the feasibility of a successful MBO transaction. Our professionals have the creativity and experience to examine a potential deal from every possible angle. Even in cases where the capital contribution of management is limited, Periculum can help you structure a deal that works. We have successfully structured deals where we have found and brought in third party equity groups to a transaction while still retaining controlling interest for the management team.

For more information about how we can help you with your transaction, feel free to Contact Us