A management buyout (MBO) involves one or more managers of a company undertaking to buy the company from the incumbent owners. For business owners, the search for suitable successors is difficult; and as such, managers from within the company are increasingly playing a decisive role in exit decisions .
However, managers oftentimes do not have sufficient financial resources to buy out the owners. Therefore, in an MBO, the majority of shares are typically bought by a financial investor.
PALLAS CAPITAL structures this type of transaction, to the benefit of all parties involved. Yet conflict of interest in an MBO cannot be avoided. Florian Koschat, experienced investment banker and CEO of PALLAS CAPITAL, provides some tips and rules of conduct for managers on how to best walk this tightrope. He explains:
- Managers should have the courage to take the helm.
- They should disclose their intentions early on if they are planning an MBO.
- They should exit confidentiality agreements as early as possible. While bound by confidentiality agreements, managers must not share any non-public information with the potential buyers.
- Managers are obligated to advise the owners of circumstances that increase value, as well as of higher purchase offers from third parties.
- Managers should stay out of the negotiations and leave them to the financial investor.
- The managers should not take underestimate shareholder agreements.
PALLAS CAPITAL has successfully implemented many MBOs over the course of the last 15 years and has accompanied many managers on their way to entrepreneurship. In German-speaking Europe in particular, i.e. in Austria, Germany and Switzerland, there are many family businesses which are good candidates for this sort of transaction.