Management Buy Outs

Management buy outs are usually brought about due to the owner wishing to retire or because a parent company wants to sell a particular part of its business.

Management buyouts are similar in legal aspects to any other acquisition of a company. The particular nature of the Management buyouts is the buyers are also the managers of the company, and the practical consequences that follow from that. In particular, the due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them. The seller is also unlikely to give any but the most basic warranties to the management, on the basis that the management know more about the company than the sellers do and therefore the sellers should not have to warrant the state of the company.

In many cases the company will already be a private company, but if it is public then the management will inevitably take it private.

Selling to the existing managers is often considered a good way of securing the future of a business and that of its staff because the existing management team are a known quantity and the current owner trusts them to look after the business.

The existing management team often have clear strategies of how to grow the company and to make significant personal wealth as part of the process.

Key Ingredients for a successful Management Buy Out include:

• An existing company with a track record of profitability
• Strong Management team
• Clear vision and direction for the company under the new owners
• Willing vendor and realistic price expectations
• The company should provide a solid platform for future development
• The team needs to be able to replace the existing owners duties and roles
• A credible business plan is vital which will normally cover 3 to 5 years

The purpose of such a buyout from the managers' point of view may be to save their jobs, either if the business has been scheduled for closure or if an outside purchaser would bring in its own management team. They may also want to maximise the financial benefits they receive from the success they bring to the company by taking the profits for themselves. This is often a way to ward off aggressive buyers.
Working with Blue Sky Law from the outset can help considerably with the up-front planning, structure and co-ordination of the deal as well as assisting the management team negotiating with the seller or vendor's incumbent advisors.

By working with Blue Sky Law at the start of the process you will avoid potential allegations of breach of contract or duty, possibly leading to dismissal, injunctions or damages claims, particularly should the negotiations break down. We will also assist with the Companies Act's requirement for the disclosure of director's interests in company contracts, asset purchases or shares.