The Red Flags to Watch Out for in MBOs
Management buyouts (MBOs) seem more popular again with exiting business owners.
Improving funding options make this route more viable — but there are risks.
Here’s where I’ve seen MBOs fall down:
Departing Owners Overestimating the Management Team. There’s a big difference between operational competence and having the entrepreneurial vision to take the business further. If your payout has a deferred element, ensure you have the best team with the right support long after you exit.
New Owners Unable to Adapt to Rapid Market Changes. Unless living under a rock, you know the world changes instantly. Disruptions like health issues, wars, staffing problems and ‘black swans’ regularly appear. It’s easy for new owners to get caught like deer in headlights — potentially disastrous.
Excessive Debt Burden. MBOs often involve substantial debt to finance the acquisition. A miscalculation risks your payout and the company’s financial health. Excessive debt may not seem so just by spreadsheets and basic due diligence.
Don’t get me wrong — MBOs provide an effective exit route for owners, but require very careful upfront planning.
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