There are several good reasons to sell your business to Management. The management staff has a good knowledge of the business, which will reassure financial partners. Generally speaking, this type of transfer is also easier for the employees, who will have a greater sense of continuity in the business. However, this exit strategy is not without its pitfalls. Here are our tips for a successful transaction…
What distinguishes a Management buyout from other types of acquisition transactions is that the future Management doesn’t always have the money required to complete the financial transaction. Therefore, the transaction often involves a balance of sale payable to the seller over a fixed term. This is where a solid financial package becomes very important, especially since the succession doesn’t always have sufficient assets to establish an adequate borrowing base. Banks will finance up to a certain percentage of the purchase price, so it is very often necessary to knock on the door of other investment funds to complete the financing plan.
Make sure the business is profitable
Buyers are faced with a significant financial burden. First and foremost, they must ensure that the acquisition project is profitable. What impact will the transaction have on cash flow? Will there be a need to reduce expenses in the early stages? How do you maintain flexibility for future investment projects? A thorough financial analysis will provide a realistic picture of the situation and, at the same time, allow you to assess the fair market value of the company.
Pay attention to the communication dynamics
Selling to the Management team that has supported you for years changes the dynamic. The roles of each party are no longer the same. From boss to collaborator, you go into vendor-successor mode, each with different objectives. In addition to the financing of the transaction, several other aspects must be discussed, such as the valuation of the company, the transfer of ownership, the transfer of decision-making powers, the presence or absence of the transferor once the transfer is completed, etc. Being guided during the process can help establish effective communication that will ensure the success of the transaction. If a disagreement derails the project, the consequences can be harmful to the company’s survival. The seller would find himself working with a demotivated Management team that is ready to jump ship. In addition, he would have to start looking for replacements and delay the time of his retirement.
Our experts can help you put in place the winning conditions to ensure that the transaction is a complete success, from start to finish.
