Management Buy In / Buy Out

We are often approached by business owners who are contemplating selling a part or the entire business to senior management. This could be in the form of selling shares to a general manager who has been recently recruited or maybe they have a broader plan to sell shares to one or more of the existing management team or staff.

For well-established and growing businesses being able to sell the business in full, or part, to senior management could be an attractive option. One of the key advantages is that senior management already know the business and are known by the current owners. This can help to reduce the amount of information required in a transaction. Done the right way, it could lead to a faster and more confidential transaction.

Employee shareholdings do, however, come with their own set of challenges and potentially complications. One common challenge is to structure the shareholding (e.g. type of shares), and to finance the transaction in the best possible way. There are usually numerous options as to how this shareholding might be structured for senior management, depending on who the shares are offered to and what rights and options there are available.

There can also be complications for employees fully understanding the different mindset required to be a shareholder owner of a business and coming to grips with the type of commitment they are making. This includes involvement in decision making, guarantees and funding that might be required.

We can help by presenting the options to the owner and by also helping to facilitate discussions with senior management to determine what really is possible. We can also work alongside the existing accounting, taxation and legal advisors.

Like many structuring situations, it’s not necessarily about having the perfect structure but instead having the best fitting option that provides a range of positive outcomes.

In our experience, structuring the deal can be the easy part – often the challenge is aligning the personalities and personal situations of those involved to get a workable outcome!

Remember also that offering shares to senior management is often just the first step in a succession plan for existing owners. It is important then to understand how any employee shareholding fits with the wider succession plan.

It’s critical that the shareholding structure that is ultimately choosen does not limit the options for your eventual exit from the business.