A2 objectives and strategy unit 6
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A2 Objectives and Strategy – Unit 6. Management buyouts (MBO). Management buyouts. The managers of a business buyout the existing shareholders to gain ownership and control of the business or part of it. Methods of finance for buyouts. Managers personal funds Bank loans

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A2 objectives and strategy unit 6

A2 Objectives and Strategy – Unit 6

Management buyouts (MBO)


Management buyouts
Management buyouts

  • The managers of a business buyout the existing shareholders to gain ownership and control of the business or part of it.


Methods of finance for buyouts
Methods of finance for buyouts

  • Managers personal funds

  • Bank loans

  • Investment funds obtained by selling shares to employees

  • The most common is, venture capitalists or private equity firms lend the MBO by taking a stake in the business for a return of about 25-30% over 3-5 years


Reasons for buyouts
Reasons for buyouts

  • Large businesses may sell off a small section to raise cash, refocus, or get rid of an unprofitable activity. Management may feel this activity could be run profitably in a different way or more finance

  • Family owned companies may prefer to sell to the existing management hope of maintaining employment and consistency

  • Firm may be in hands of receivers and selling part of business to managers will raise finance to pay creditors


A2 objectives and strategy unit 6

Reason sold

Finance

Information sourced from http://www.chorion.co.uk www.bbc.co.uk


A2 objectives and strategy unit 6

Finance

Reason for sale

Information sourced from www.bbc.co.uk and www.peacocks.co.uk


Rewards of buyouts
Rewards of buyouts

  • Management and employees have more motivation and responsibility

  • No owner manager conflict so objectives may be clearer

  • Less bureaucracy as no head office so no hindering progress

  • Profits will not be diverted to another part of the organisation

  • If successful the company may be floated on stock market or selling shares in a takeover offer


Risks of buyouts
Risks of buyouts

  • Personal losses for new owners if unsuccessful

  • Original owners may have been right to sell if unprofitable. Why will it change?

  • Little access to capital?

  • Considerable rationalisation and job losses may follow, therefore adverse morale


Are buyouts a good thing
Are buyouts a good thing?

  • 314 MBOs completed in the first half of 2004 – 12 a week – total value of £7.6 billion

  • Some say if managers see value in the firm they should deliver it to the shareholders

  • Workers may be more at risk than if owned by a larger firm

  • Jobs may not have existed if there had been no MBO