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The benefits of an MBO vs. a trade sale

When considering succession options, owners often find themselves having an internal debate between whether they should carry out an internal management buy-out or engage in a third-party trade sale. As an owner, you can only sell your business once. It’s a high stakes game that involves balancing your personal needs, the needs of your staff, and your clients. For some sellers, the answer will be obvious, but to many it is not. Many sellers wonder whether a sale to their team will cost them personally. The short answer is that no, you needn’t sacrifice your personal needs when executing an internal sale. In fact, a well-planned sale to your team has many benefits to all concerned. On a personal level, not only will you be able to exit at a fair commercial value, but you will be able to control the timelines and phases of your exit – something that a corporate sale is unlikely to do. Furthermore, a corporate sale carries the risk of disruption to all areas of the business, and although it may often come with a lucrative price offering, it means that you, as the seller, cannot exit on your own terms.

An MBO allows you to guide and mentor your team from management to shareholders. This will facilitate a smooth transition period, during which the value of the firm will grow as a result of the additional support and newly aligned interests. At the end of the process, you will have ensured that you can receive fair value for your business on terms that match your personal timeline. What’s best is that you will also have ensured the continuity of the client proposition, protecting clients and staff from potential corporate raiders. This inter-generational business will be part of your legacy.

Selling internally protects the firm’s culture and values, while actively increasing the firm’s value itself. It is something, however, that does not happen overnight. It is a process requiring diligent planning and execution. We have found the process to be more of an art than a science to execute.

Having facilitated numerous MBOs, we believe they are a great succession option for all parties, but the planning and execution start with an open-minded seller. If you are interested to learn more, please see our MBO guide for more information.

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