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A Management buyout is a common process in the business world where the management team at a company acquire the business by buying out the current owner(s). There are many reasons why this occurs and it is often preferable to a trade sale, which can be problematic if there are not many potential buyers and often management will be the best people to keep the business running successfully as opposed to a new, external owner.
So, how does a management buyout typically go? While there are no hard and fast rules, you will find that there are common factors and it is important to know if this is the smartest step forward for all parties.
The Management Team
Cash Flow
It is also important that the company has a strong cash flow when looking to secure funding for the management buyout. Businesses that generate a lot of cash will always be favourable because it will make the debt and interest repayments on any loan much easier and less of a risk to lenders.
Industry
Consider the Employees, Customers & Other Stakeholders
A Management buyout can make a lot of sense in certain situations and often the better option than a trade sale, but these are also highly complex processes to go through and it is important that you have everything in order before moving forward.