A management buyout (MBO) can be a great option when owners are looking to move on, but these are also deals that can be complex. Often, the complexities of an MBO are not in terms of the logistics but the finances as the management team will need to find a way to fund the purchase of the business. There are a few options available, so keep reading for all that you need to know about funding an MBO.
The most common solution is to take out a business loan to fund the purchase of the business. This can be a quick and easy way to raise the funds for management and you can consult with management buyout specialists that will guide you each step of the way and help you to secure the funding for the transaction.
Another option to consider is asset financing. If the business owns substantial assets, such as business property or stocks, then these assets can be used as collateral to secure funding. Essentially, this is a secured loan that will provide some security to the lenders and make it easier for the management team to get approved for funding.
Private equity is another common form of funding for a management buyout. This is an alternative form of private financing where funds and investors invest directly in private companies or buyout companies away from the public markets. There are many forms of private equity and it can be a highly effective way for a management team to raise the funds required to buy out the company from the current owners, but it will result in giving up shares, board seats and a level of control (although this is not always a bad thing).
Mezzanine capital has become a popular option for management buyouts in recent times and is another form that should be considered. This is a non-traditional form of financing that is a combination of debt and equity and allows the lender the chance to convert debt to equity if the borrower defaults on the loan. It is commonly used as a way for businesses to raise funds for various projects, including an MBO.
These are the main options that you have when it comes to an MBO. An MBO can be the ideal process when owners are looking to move on and it gives the opportunity for management to step up, but the financing can be tricky and it is important to find the right option.