How much should management invest in an MBO?

05-11-2007 17:14	How much should management invest in an MBO?
De redactie Redactie Financieel Management	Management is expected to invest personal funds into the buyout. Management’s contribution to the purchase price is logically moderate. It is not about management financing the transaction but more about showing their commitment and confidence in the future of the company. This to the comfort of the investors and banks. For the management, buying shares must be their best possible investment. If not, why would investors and banks want to back the management? How much management must invest differs from situation to situation. Management must have money at stake but not amounts that will lead to sleepless nights. A rule of thumb is that, depending on their personal situation (wealth), work history and position, managers are expected to contribute 1 to 2 years’ base salary, which may be sourced from savings or through borrowing. Should management have some stock or options, the investors may expect them to re-invest the majority of their capital gain. The investor will want management to be ‘buyers’ not ‘sellers’. The exact amount is always a matter of negotiation between management and investor. « Terug naar Management Buy Out

05-11-2007 17:14

De redactie
Redactie
Financieel Management

Management is expected to invest personal funds into the buyout.

Management’s contribution to the purchase price is logically moderate. It is not about management financing the transaction but more about showing their commitment and confidence in the future of the company. This to the comfort of the investors and banks.

For the management, buying shares must be their best possible investment. If not, why would investors and banks want to back the management?

How much management must invest differs from situation to situation. Management must have money at stake but not amounts that will lead to sleepless nights. A rule of thumb is that, depending on their personal situation (wealth), work history and position, managers are expected to contribute 1 to 2 years’ base salary, which may be sourced from savings or through borrowing.

Should management have some stock or options, the investors may expect them to re-invest the majority of their capital gain. The investor will want management to be ‘buyers’ not ‘sellers’. The exact amount is always a matter of negotiation between management and investor.

« Terug naar Management Buy Out

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