Whether you are selling your company or buying into one, the strength of the management team will be a key factor in the future success of the business. Typically, a management buy-out (MBO) or a management buy-in (MBI) will focus on giving the management team the chance to use their experience to achieve rapid business growth and success.
Alongside the transfer of shares and assets, MBOs and MBIs require careful strategic planning to succeed, particularly as the transactional process involves managing the concerns of the sellers, management teams and often external investors.
Working with our experienced corporate solicitors will help guide you through the MBO or MBI process and complete your transaction smoothly and efficiently, helping ensure that the day-to-day running of your business does not suffer whilst its ownership changes hands.
What is the difference between an MBO and an MBI?
A management buy-out (MBO) is the purchase of a business by its existing management team, who have an in-depth understanding of the business and a vision of its potential. Depending on their circumstances, they may not have the funding in place, and there may be some skills gaps which need to be filled.
A management buy-in (MBI) is the purchase of a business by an external management team who will usually have experience in the relevant sector and will therefore be likely to bring valuable new skills and industry experience to a business. External teams are also more likely to have available funding, or be able to raise funding, to finance the transaction.
What are the key legal issues to consider for an MBO or MBI?
Key legal issues to consider in MBO and MBI transactions include:
- Preparation – Do you need to tidy up any issues within the business before sale, such as debts or loans, or a dispute with a supplier, customer or employee that the new team would not want to take on? Are your contracts and terms and conditions up to date and watertight or are there any risky or onerous contracts which should be terminated?
- Deal structure – You will need advice on preparation and structuring the transaction, including making sure that the management team are the right fit and that the transaction is fair and workable for all parties involved. This includes legal advice, but also consideration of financial and tax implications.
- Funding – A myriad of funding arrangements are possible, and advice will be needed on appropriate funding, whether deferred consideration or an earn-out element should be included as part of the transaction, as well as negotiating the terms of security etc. For example, this involves consideration of whether the deal will be funded through cash, debt, equity funding (or a combination).
- Warranties – Negotiating suitable warranties to protect the management team against future liabilities will be a key consideration.
- Intellectual property – Have you established clear ownership and secured the value in your intellectual property, for example via trade marks and patents?
- The team – Is any internal reorganisation required in advance of the transaction? Employment law advice will be needed throughout the deal, and service agreements will be needed for the new directors.
How we can help
Whatever your role is in an MBO or MBI process, our experienced corporate solicitors will guide and support through each step and help you avoid legal pitfalls which could put the business at risk.
Our support includes:
- Strategic advice on MBOs and MBIs and the best structure for your deal;
- Drafting head of terms and confidentiality agreements;
- Drafting and negotiating key documentation including sale and purchase and investment agreements;
- Undertaking and responding to due diligence questions and drafting disclosure letters;
- Advising on and drafting finance agreements in connection with funding the transaction;
- Ensuring all the correct corporate law procedures are followed and offering company secretarial services (such as updating statutory registers and dealing with Companies House filings);
- Drawing upon the expertise of colleagues where required, for example regarding commercial property, employment lawor commercial litigation;
- Liaising with other advisors as required, including tax and financial advisors, for support with the transaction;
- Dealing with exchange and completion of the transaction and preparing documentation to evidence ownership of the business or company; and
- Dealing with any post transaction document filings.
Why choose Geoffrey Leaver Solicitors?
Our corporate solicitors in Milton Keynes have advised on numerous MBO and MBI transactions and will work closely with you to help protect your best interests. We work with companies of all sizes and have supported businesses across sectors, ranging from traditional manufacturing to insurance brokers, car retail, software developers and high-tech firms.
Our recent work has included:
- Dealing with a scheme of arrangement enabling a company to be split into two separate entities, allowing the sellers to retain the entity holding the freehold premises and a trading entity which was then purchased by the management buy-out team;
- A company re-organisation which enabled a freehold property to be sold to the seller, allowing the management buy-out team to acquire the ongoing trading business; and
- A buy-out by the managers of one of the longest established cycling companies.
What our clients say:
“From my first meeting with Danielle through until completion of our job I felt entirely in knowledgeable and capable hands. I was always kept up-to-date with the progress and milestones we needed to take and Danielle was efficient and diligent in following up with all parties to ensure the process moved along smoothly. Danielle was always available to answer and clarify any queries I had. I’d be very happy to recommend Danielle and her team at Geoffrey Leaver and will of course take any future legal problems I may have directly to Danielle for her expertise.”
The Company Commercial Team
Tim Roberts Senior Partner
Company Commercial 01908 689356Tim Roberts is Head of the Department and the firm’s Senior Partner. He began his career as a solicitor in the City of London before moving to Geoffrey Leaver Solicitors Company Commercial department. He has over 30 years of experience in Company Commercial and specialises in all aspects of the sale and purchase of companies and businesses, including management buy-outs, corporate restructuring, banking and corporate finance.