MBO can be the ideal company succession

What could be the ideal soluti­on for a business succession!

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

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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

Image: Fotolia.com


What are the advan­ta­ges of an MBO for business succes­si­on?

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.