Management buy-out (MBO) is obvious and yet too rarely implemented! The takeover of a company by a senior employee is actually an obvious way. For the succession issue of owner-managed companies when own family members are not an option. Nevertheless, the management buy-out (MBO) is by no means as widespread among smaller SMEs as one might think. This is also confirmed by statements from banks, savings banks and chambers in the Rhine-Main region. According to them, there is a broad spectrum of financing available for MBOs that is used far too seldom. Yet there are many reasons that speak for an MBO as an ideal business succession.
Low-risk company succession through MBO
- From the point of view of the transferor, the advantage is that he has known his successor for many years, knows about his strengths and there is a basis of trust. It is not the family connection that counts, but the talent of the employee. The somewhat more moderate purchase price is offset by the desired continuity with the company, customers and employees.
- The successor from within the company, provided he fundamentally enjoys an entrepreneurial role, already knows his company and avoids a time-consuming, often frustrating search outside the company. He takes significantly lower risks when acquiring than when taking over an unknown company or even founding a new one.
- The financing bank secures the continuation of the business relationship. Unlike in the case of a sale to a competitor, the buyer is likely to leave the banking relationship unchanged. If the purchase price is reasonable, acquisition financing should not be an insurmountable hurdle. Ultimately, an MBO is always less risky for the financing bank than a takeover by an outsider.
- Even if the MBO candidate’s equity cover is thin and financing is tight, there are a number of funding options available from the regional funding institutions and KfW. Unfortunately, the available instruments are not yet used frequently enough in the context of management buy-outs.
- Finally, a fertile environment of private investors, business angels and family offices of entrepreneurial families has developed in recent years, which increasingly support smaller MBOs with equity.
More courage and chutzpah in company succession
Many entrepreneurs do not trust their employees to take on the role of entrepreneur ? often wrongly or even in ignorance of the actual opportunities. In contrast, MBO candidates often shy away from the risks and the financing challenge. In view of the advantages of an MBO succession described above, it helps to dispel any reservations at an early stage and in an informed manner and to lower the presumed hurdles and risks for interested successors from one’s own company. The possibilities and instruments are available, they just have to be used.
Tips for further reading:
5 important trends in business succession in 2019
Foundation was not an issue, takeover was”.
Equity, liability and financing application
DIHK: Challenges for company successions are growing
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1. the successor has been known in the company for many years
2. the successor knows his company and thus takes lower risks than with a start-up or foreign companies.
3. as a rule, acquisition financing by the bank
4. funding opportunities through regional funding institutions and KfW.