Management Buyouts (“MBO’s”) – Discussions and Negotiations
By this point you’ve properly considered and understood what the vendor wants from the deal, and then key issues for him. Equally you have a clear view of what you and your MBO team want to achieve. You’re now in the best position to negotiate a mutually acceptable deal. Here are some pointers to those discussions.
• The whole negotiation process is a matter of balance. Firstly, balancing the vendor’s requirements against what you can and indeed are willing to do. Then there is the balance between the vendor’s price aspirations, and what you can afford.
• Central to all the negotiations is the question of value, and price. Whilst there are many other important factors, until at least broad agreement on price has been agreed, you cannot define your formal offer, the structure of any deal, or secure any funding that may be required.
• As previously outlined, your offer must be fair and reasonable, and be approximate to market value, but giving clear advantages to the vendor over possible market offers, in terms of practicalities and ease of completion.
• As a team you must demonstrate clear leadership and decisiveness, and give the vendor confidence in your bid, and ability to complete a deal. Make prompt and clear decisions and communicate to all parties clearly and effectively.
• You must negotiate fairly and objectively, try always to see the vendor’s point of view, and be seen to seek to accommodate that as far as possible. The vendors will have built the business, have empathy for their position, even if you don’t agree with everything. Be flexible and acknowledge concessions.
• Above all, avoid any kind of confrontation or argument. There will inevitably be sticking points along the way, deal with these professionally, try to make positive and helpful suggestions as to a way forward, rather than simply disagreeing.
• Once negotiations are concluded your offer will normally be accepted in principle, at which point don’t waste time, formalise that offer and acceptance in writing and commence the next stage of the process, normally the due diligence.
• As an MBO team you will be more directly involved in due diligence, as you will inherently know about the business, and will know what areas to look closely at and on which aspects you can use a “light touch”, or even dispense with.
As previously mentioned, some degree of external impartial and professional help will have been hugely useful throughout this process, but never more so than at this next stage, the due diligence and legal completion phase.
13 December 2018