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Financieel Management

Price. A trade sale is often the vendor’s first consideration and mostly for purposes of perceived price optimisation. However there are a number of reasons why a manage-ment buyout can be a price competitive and a preferred alternative for the vendor:

- Innovative deal structuring, the creative use of financing instruments and the use of leverage enable competitive bidding. The investors backing the management are also not restricted by issues like ‘impact on earnings’ and goodwill charges.

- Incumbent management knows the inner workings of the company, where to improve profitability, how to manage risks and is in the best position to recognise strategic opportunities. A buyout bid is therefore more credible, with a greater certainty of outcome for the vendor (deliverability). Furthermore, the scope and extent of warranties and indemnities given by the vendor in the case of a buyout are generally much less than in the case of a trade sale.

Speed. A management buyout can be realised much quicker than an outside sale. The fact that management already knows the business shortens the initial stages of the deal. Speed can be a real competitive advantage towards the vendor and also means less disruption for the business and less uncertainty for the organisation and market alike.

Confidentiality and familiarity. With a management buyout there is no need to provide confidential information to competitors, who might use it to enhance their competitive position. Familiarity can also be important where the vendor may wish to have a continuing (trading) relationship with the business and may feel more confident dealing with the incumbent management.

The vendor could retain a stake in the company. A management buyout can easily be structured to allow the former owner to retain a minority stake in the company. This provides ongoing involvement and upward potential. In a trade sale this might be more difficult as the buyer would probably want to integrate the business into its own. An ongoing interest may also provide ‘insurance’ to cover the vendor’s fears of underselling the business. When the business is eventually exited and a big profit is made, the vendor will participate herein.

Good home. Leaving the company intact, providing it with an efficient ownership and governance model together with the availability of growth capital make an mbo a good home for the company to move into. This gives seller comfort and may be good for public relation - responsibility reasons.

Management Team might be favoured by the organisation. The management is likely to have the backing of the organisation because people know that a management buyout will keep the company and its culture intact and normally preserve the employee base. Employee stock ownership plans or profit sharing schemes can make it even more attractive for the organisation.

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