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Financieel Management

Some managers regard the initial approach to the vendor, marketing the MBO and obtaining approval to pursue one as the most difficult and sensitive issues.

Is the business for sale? Who makes the approach? When to make the approach? Who to approach? What do we say? How to sell the opportunity? What about the perceived conflict of interest? And many more questions may come to mind, with the subsequent lack of immediate answers unfortunately being too often the reason why the MBO idea is shelved.

If the business is for sale and management is invited to pursue a buyout or the owners have raised the possibility in passing, then initiating matters should be straightforward. If management has been approached by an investor who wants to buy the company, it is just their duty to inform the owner. However, an unsolicited approach may require more finesse. It obviously helps if the management team is important to the business and personal relationships with the vendor are good. It is always essential to understand the vendor’s rationale for selling and what motivates the vendor: why is the business for sale and what are the important issues for the vendor - price? speed? independence? And consequently, how would the suggestion of an MBO be received? If the owners indicate a willingness to consider a sale, management should raise the possibility of an MBO at a suitable opportunity. And of course management will have to accentuate the attractions of selling to the management team rather than pursuing a trade sale in a competitive auction.

Depending on the situation, it may be appropriate for the buyout discussions to be initiated by someone other than the management. This can be either a financial adviser or a chosen investor. However, given the nature of the relationship between management and owner, it is often appropriate for management to take the initiative and ask permission to pursue a buyout. Owners tend to be more open to management concerning the possibility of a sale than they would be to an outsider. And there is always the consideration that the vendor must, in some way, welcome management to a buyout. If the business is for sale, management may then ask for a ‘first shot’ to come up with an acceptable buyout bid before a competitive sales process is started.

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