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Finance for a Management Buyout

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Funding options

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Making Buyout Affordable

  • Bespoke finance packages
  • Individual solutions
  • Flexible repayment arrangements
  • Terms to suit your business plan

Private Equity

  • High levels of finance available
  • Individual support
  • Redemption arrangements available
  • Variety of repayment structures

Secured Loans

  • From 2% above base rate
  • Up to 25 years terms
  • Finance secured on business or personal assets
  • Early repayments without penalty

Acquiring an existing business in a Management Buyout can be an excellent investment. The returns can be substantial - but the investment required will be high

Table of Contents

Management Buyouts allow a company’s management team to buy the assets and operations of the business they manage.

A Management Buyout, or MBO, lets large corporations sell off divisions that are not part of their core business, and allows the owners of private businesses to sell their business and retire. For the buyers, usually the professional managers of the business, they mean acquiring a business that they know and understand - and the greater rewards from being the owners of the business rather than its employees.

Becoming the owners of a business that has already demonstrated its profitability avoids the costs and uncertainties of setting up a new venture. But although it means you may have a better chance of enjoying real rewards, you can be certain of having real costs to deal with first.

There are many ways to deal with these costs. Once a price has been agreed - which may be at a substantial discount on the market value of the business - it usually requires a combination of debt and equity that is derived from the buyers, financiers and sometimes even the seller, and can be structured in a number of ways such as a conventional purchase or a leveraged buyout model.

What about Leveraged Buyouts and Earnouts?

A Leveraged Buyout, or LBO, is where a company is purchased with a combination of equity and debt. It means that the company's cash flow is used to secure and repay the borrowed money. They are often used because few management teams have the financial resources to buy the target company outright. They need external financing to facilitate the purchase and are often dependant on leveraging some of the assets of the target company.

An Earnout is an arrangement where the seller finances a portion of the purchase price. The repayment of this portion is achieved from a predetermined sum or proportion of future earnings.

Both Leveraged Buyouts and Earnouts require careful structuring to succeed - they will also require external funding.

The external funding you need for an MBO

Existing owners may prefer a Management Buyout to a trade sale for a variety of reasons, especially if the owner feels that their company and its staff can best carry on in familiar safe hands.

As experienced managers, the new owners know the company, reducing the risk of failure and ensuring that employees and trading partners can see the change as business as usual. 

The transfer of responsibilities between the vendors and management can remain confidential, while any due diligence required by funders can often be handled quickly.

But even if vendors are willing to sell the company at a realistic price, the biggest hurdle may simply be finding the necessary funding.

In practice, MBOs are usually funded via a combination of sources:

A buyer contribution – The management team is usually required to introduce personal funds, and funding companies consider it a measure of the team’s committed to the transaction. Managers may raise the funds by selling off assets or getting a second mortgage on their home.

Asset Refinance – leveraging against the assets in the company, such as premises property, stock and equipment can raise a high level of funding.

Borrowing – lenders may provide Unsecured Loans, repayable over three to five years, to support MBOs. A larger scale of lending and a longer-term solution may be provided by a Secured Loan, with the security provided by other business assets.

Private Equity – Private Equity firms usually want liquidity after 3 to 6 years. Their funding often includes stipulations about how the company must be run and may include financial and other objectives.

Vendor Loan – the vendor can actually help fund the transition by leaving some of their equity in the company as loans that are repaid over time. This may be stipulated by some lenders who want to see evidence that the plan is seen as fully viable by the sellers.

Why you need Rangewell to find finance for your Buyout

If you are ready to buy into an established practice or business, many lenders will be happy to lend. Your professional status will present as a good business risk, and you can easily prove the viability of an existing business with accounts and order books.

But not all lenders will be able to offer the most competitive terms or even provide the flexibility that you need.

Looking for the most competitive deal across the entire lending market, unfortunately, takes time and expertise. But at Rangewell, we know the lenders who can offer the most competitive rates for you, and we find solutions for all types of business finance.

We help source the entire range of conventional loan products, and Alternative Funding from new loan providers and styles of funding. Even more important when it is an MBO, we can work with you to tailor the kind of complicated ‘Jigsaw’ Funding plan you will need to support your plans.

We understand the challenges of MBOs. Call us now to get our experts working for you.

REAL EXAMPLES OF WHAT WE CAN DO

  • Source a Professional Loan to allow a physiotherapist to buy his employer's practice

  • Find the most competitive Asset Refinance deal to allow the manager of a transport company to buy out its owner

  • Help the management team buy an engineering company in the aerospace sector

  • Find Mezzanine Finance to allow the management board of a medical equipment company buy the business from the corporate owner

  • Produce funding for a management team to buy a bottling company


Last update: 9 December 2022

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