Description
Management Buyouts (MBO)/ Buy-ins (MBI) is the partial or complete takeover of the shares of a company or part of a company by its own or future management. The buyout/-in can be financed with high leverage.
In concrete terms, every fifth SME plans a company succession within the next five years. Extrapolated to the economy as a whole, this means that by 2021 around 70,000-80,000 SMEs will be facing a generation change. These companies are responsible for more than 400,000 jobs, which corresponds to around 10% of all employees in Switzerland.
Areas of application
Buyouts/ins can be used in various situations, including when:
o a company wishes to dispose of company parts that no longer correspond to its overall strategy
o the succession issue in a family business is to be resolved
o the management feels that the target company is clearly undervalued
o a threatened hostile takeover is to be averted by means of privatisation
o a state enterprise is to be privatised
o a liquidity/financing gap needs to be closed
Usefulness
The main benefit of buyout/in lies in the fulfilment of the specific objectives arising from the respective application area.
Core elements/procedure
Due to the multitude of different application areas, the specification of a "typical" process is hardly possible. However, there are elements that belong to a successful buyout/in:
• As-is analysis/due diligence
The company in focus must be analysed intensively and holistically in the run-up to the transaction. This includes, among other things, the business areas. Market situations, products, services, technologies, financial and strategic development/planning, management structure, operational and organizational structure as well as ownership structure.
• Selection of participants:
All relevant parties must be involved in the preparation of the buyout:
New/old management, former owners and investors. For special questions, auditors as well as tax and legal experts must be consulted.
• Business Plan:
On the basis of the actual analysis/due diligence as well as the strategic, business and financial planning, a business plan must be drawn up as a working basis.
• Implementation:
After successful completion, the implementation phase takes place in analogy to the business plan. In many cases, any financial investors involved withdraw after a few years (usually by means of sale).
Conclusion
The transition from manager to owner requires an adaptation of the mentality. Not all managers are successful.
If managers bid for their own company, there is a conflict of interest. A potential risk is the management's information advantage, which can lead to the sellers being cheated by management. Management could also downplay or deliberately sabotage the company's future prospects in order to buy at a favourable price.
Sources
Gerd Lütjen: Management Buyout
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