What to investigate when looking at a management buyout

What to investigate when looking at a management buyout

When individuals who work within a specific business decide to buy all or part of the business in question from its current owner/s, this is called a management buyout. The process can be daunting and nerve-wracking for all involved but it can also lead to new and exciting opportunities – not only for the people who want to acquire the company but for the owner who wants to move on.

There’s much to consider when looking to take over the control of a company, so as well as seeking the help of Management Buy Out advisors here’s what to investigate.


  • Does the company have an owner that’s ready to sell?

It might sound obvious, but if the owner of the company is not yet ready to sell, you may be in for a long and tumultuous ride. Many business owners have started their own organisations from scratch and therefore handing over all their hard work can be a long and emotional process. As a buyer, you must decide if you’re ready to wait – and for how long?

  • Does the company have a competent and complete management team?

During a management buyout, the existing management team usually combines their resources to acquire full control over the company. This setup works best when all key positions are filled as while it is possible to bring in new staff, banks will often question unproven team members with limited knowledge of how to grow the business and take it to new heights.

  • Does the company have a good record of profitability?

If the company has a good record of profitability and the management team will not change during the buyout process, there may be no obvious reason why a deal shouldn’t go ahead. If a company’s profits are down, however, a buyout could be incredibly risky. While a shakeup can sometimes prove successful, it is worth understanding why the current owner wants to sell. Business advisory services will also be able to offer you more advice as to what your next move should be.

Whatever you do, don’t ignore the risks. Should you feel uncomfortable about the buyout during the early or late stages, be sure to voice your concerns and never feel pressurised to proceed.

  • Does the company have untapped products/markets?

If a company has untapped products or markets, a buyout could be a good idea – so long as all parties are willing to explore new avenues of potential growth. Pursuing new opportunities could prove beneficial, but you must be sure to have a sound business plan and a logical implementation strategy in place. Similarly, if you decide a rebrand could help to develop the company in question, there’s no reason why you can’t pursue this in the future so long as everything is well-executed. In short, you’re looking at future growth and whether or not it’s worth buying out a business.

  • How will the buyout be financed?

It’s unlikely that all parties of the buyout will have sufficient funds, so you’ll need to establish a fair evaluation before obtaining the relevant funding. Again, expert advice should be sought to ensure you take the right financial option for you in the given climate.

A management buyout is a process which may take months or years to complete. It can be a rewarding career move, but be sure to carry out thorough investigations prior to investing.

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