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Mergers, Acquisitions & Disposals

A management buyout is the generic name for transactions where the management team of a company acquires the shares in that business.

A management buyout (MBO) can be common in the context of a family-owned business where the shareholders are looking to sell their interests and the incumbent management team express an interest in buying the company.

Within the corporate law team at Lupton Fawcett, we have extensive experience in working on a wide variety of MBOs.

An existing management team will have intimate knowledge of the target business and its workings, so do not need to commit the same level of resources to investigating it as a third party purchaser might. The sellers of the shares may also take comfort from the fact that the management team are likely to require a lower level of warranties generally.

The management team normally seek funding to enable the purchase so will need to appoint a banker, which can be the company's existing bank or a different bank. The funding bank is also likely to appoint its own advisers to advise on the deal and generally, the bank and management advisers will work together to a greater or lesser extent.

It is also common for the bank to fund a new company incorporated for the purpose of acquiring the target business. The management team then take the shares in the new company in accordance with their agreed proportions. They may also invite lower management to participate by say, granting share options to be exercised in the future. The management team will also need to consider, amongst other things, whether they need a shareholders' agreement, any new service contracts for directors (or new directors) and how managers who wish to leave the company post-MBO should be treated on departure.

Other types of management buyouts

There are many variations based on MBOs including:

  • MBI, or management buy in, this involves a funder assembling a management team to acquire the target company (sometimes private equity providers favour this type of transaction).

  • BIMBO, or buy in management buyout, is a combination of MBO and MBI.

  • FAMBO is the term used for a family buyout (for example, where the second generation buys the business from the first generation within a family).

These are not the only types of transaction structure.

Talk to us

If shareholders are considering selling a company to the management, or if a management team is considering putting in an offer for a company, it is crucial to obtain good legal advice early in the transaction. Yorkshire-based Lupton Fawcett has substantial and recent experience of advising on the management buyout process. Read some of our case studies here:

For support regarding all aspects of corporate law, talk to our solicitors today by calling 0333 323 5292 or by filling in our online contact form. We have offices across the county, in Sheffield, Leeds and York.

Further reading

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