MBOs Part 2 – The Challenges
One of the biggest challenges relates to the time and commitment required by the MBO team; the deal requires significant input from the key members of the team, but the business and their existing roles as employees are in no way diminished; and indeed failing to look after the interests of the target company during the deal process can act as a double-edged sword; they clearly do not want to buy a weakened business, as a result of taking their eyes off the main focus of their usual day jobs. Managing this natural conflict effectively can prove fundamental in a successful deal being concluded; an MBO team’s advisors will often play a key role in helping to balance these competing interests, for the benefit of everyone involved, as well as the underlying business itself.
The key deal documentation will ultimately reflect the deal between both the MBO team and potentially their funders, in moving forward. Not spending enough time on the terms of the investment agreement or on director service contracts, ensuring everyone’s future roles are clear, can be a mistake. MBOs, however well intentions, sometimes do not work – it is a well-constructed investment agreement that allows change and potential restructuring to be put into effect more easily, if the dynamics change once the post-deal rush has settled down.
Surprises do happen; it is wise to watch out for potential issues that might threaten to derail the deal process and potentially what was a positive working relationship, before negotiations, between the MBO team. Having corporate finance advisors that can quickly grasp both the ins-and-outs of the transaction and importantly the dynamics and personalities of the core team often proves invaluable in securing a positive deal, allowing what is hopefully an already successful company move to the next level.
Don’t miss our next instalment where we explore the funding options for MBOs.