Management Buyout (MBO)
Management buyouts have been used successfully for decades and remain one of the most established forms of business succession. They can be a good option where there is a capable leadership team ready to take the business forward and a founder looking to step back.
At Postlethwaite, we can help you as a business owner understand whether an MBO is the right solution and if not, help you consider the alternatives. We can then guide you and your team through every stage of the transaction.
What is a Management Buyout?
A Management Buyout involves the existing management team purchasing the company from its current owner(s).
Typically, the management team forms a new company (Newco) which acquires the shares in the company. The purchase can be structured in a number of ways depending on the circumstances of the business, the management team and the seller's objectives.
The transaction is often designed to provide continuity for employees, customers and suppliers, whilst enabling you as the founder to realise the value built up in the business.
Is an MBO right for your business?
An MBO may be worth considering if:
- You have a strong, ambitious management team capable of leading the business.
- You want the business to remain independent.
- Protecting relationships with employees, customers and suppliers is important.
- You are looking for a planned and gradual ownership transition.
- You want to reward the people who have helped build the business.
Things to consider when planning to do an MBO
- unless payment of purchase price is largely deferred (paid in instalments to the founders, funded by the company’s future profits), funding may be complex
- negotiations can become sensitive where personal relationships exist
- management capability must be carefully assessed
Tax considerations for an MBO
You as the seller will pay capital gains tax (CGT) at 24%, (or 18% on the first £1m of gains if you qualify for business asset disposal relief).
Where the purchase price is paid over time, it may be possible for the CGT to be paid in instalments, linked to when each instalment of purchase price is paid.
As every transaction is different, specialist tax advice should always be obtained.
Considering your succession options?
A Management Buyout is just one way to transfer ownership of your business internally. Depending on your goals, alternatives such as an Employee Ownership Trust (EOT), employee share schemes or management and employee buyout (MEBO) may be more appropriate.
We'll help you understand the advantages and implications of each option so you can make an informed decision with confidence.
Succession option comparison table
| Succession Option | Best for |
|---|---|
| Employee Ownership Trust (EOT) | Selling to employees with tax advantages |
| Management Buyout (MBO) | Existing management team taking ownership |
| Employee Share Schemes | Gradual succession and incentivising key people |
| Trade Sale | Selling to an external buyer |
How we can help
Management Buyouts require careful legal planning, balancing the interests of sellers, the management team and any lenders or investors.
Our experienced team can advise on every stage of the process, including:
- Assessing whether an MBO is the right succession option.
- Structuring the transaction.
- Preparing and negotiating the legal documentation.
- Working alongside your accountants, tax advisers and lenders to deliver a successful outcome.
We have extensive experience advising on business succession and internal ownership transitions, helping owners choose the route that best fits their business and long-term objectives.
Get in touch to discuss your succession plans with one of our specialists.