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BUYING into and taking the helm of a business you know well can be an exciting prospect. A management buy-out offers the experienced management team a chance to take a business forward in new ways.
“It is worth getting a corporate solicitor on board as soon as you sniff the opportunity for a management buy-out,” says Tom Bodkin, a solicitor with Borneo Martell Turner Coulston. “There will be many things to consider when selecting your funding arrangements, and it is important to be in the strongest position before you start negotiations.”
Tom highlights a few of the key issues which you may need to address.
Debt to equity ratio
As with any business acquisition, with a MBO you should keep a close eye on the debt-to-equity ratio. It is important that it is well-balanced and kept in check.
For example, if the company you hope to buy into already relies on high levels of debt to fund its trading activities (via existing loans, a business overdraft, or supplier credit terms) then it may not be a good idea to load it with more debt on acquisition.
Cash flow
With cash flow always being king, whatever you can do to protect and preserve it will stand your business in good stead. As such, it is advisable to do cash projections for each funding option and work out which route is likely to give your business the best chance of a positive trading cash flow.
The business may suffer from a poor credit profile or other financial concerns. By working in tandem with your appointed accountants, our legal team will be able to highlight and recommend potential strategies to ease cash flow concerns.
Legacy disputes
When planning your MBO and assessing your funding options, it is important to understand the position of the business in relation to legacy disputes.
These disputes may range from an upcoming employment tribunal to more complex litigation including contractual breaches, indemnity call-ins, debt claims or an allegation of intellectual property infringement. It is vital that you have early notice of any such current or impending actions, potential insurance coverage (if any) and the benefit of best versus worst case scenario forecasts.
How we can help
If you are looking for legal advice regarding a potential MBO, contact Tom Bodkin in the corporate and commercial team at Borneo Martell Turner Coulston on 01604 622101 or email
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
