News & Insights

Rise of Management Buyouts

by | Jan 16, 2019 | Articles

What You Need to Know About the Rise of Management Buyouts

A management buyout (MBO) is when a business’s management team purchases the company, usually by relying on both private and external finance. MBO offers a sound alternative to a trade sale. These buyouts have steadily risen over the past few years. Here’s what you need to know about this alluring M&A option.

Management Buyout Statistics
Management buyouts were most prevalent among tech companies last year, constituting 20% of deals. Eleven percent of industrial deals featured management buyouts, compared to 9% in manufacturing. This year’s highest-profile MBOs include Pizza Hut and Holiday Extras.

The Role of Political Uncertainty in Management Buyouts
Political instability undermines M&A activity, but it may have the opposite effect on management buyouts. In Britain, the General Election of 2017 prompted a surge of deal activity, as owners sought to counter risk in the wake of governmental uncertainty. In the U.S., disruption is also figuring prominently in the political landscape. Companies may feel more comfortable handing the reins over to managers, and would-be entrepreneurs may be more interested in buying companies they already know well rather than striking out on their own.

Ample Funding Availability
The availability of significant funding is also a major contributor to the surge in management buyouts. Equity and debt funds, as well as both traditional and challenger banks, are often willing to fund these buyouts. With more competition in the funding space, there’s been a major boost in the number of transactions.

Private equity firms have an abundance of cash on hand, leading to record-breaking funding at the end of 2018. With mounting pressure to put their capital for work, PE has an insatiable appetite for deals, and a tendency toward favorable valuations.

Management buyouts temporarily slowed in the wake of the financial crisis, as business owners delayed their exits in the hopes of bigger future values. Over the last few years, these increases in value have come to fruition. Though political uncertainty remains a factor, there is healthy growth in sales in the UK and the US. When there is more certainty about this process, companies can expect a bonanza in M&A activity, and especially in management buyouts.

An Eye to the Future
2018 was a banner year for management buyouts. Despite a slight downturn in activity this year, deals will likely continue at a healthy pace. As uncertainty remains an issue on both sides of the pond, the appetite for MBO remains healthy. Funding options and conditions will likely remain favorable. Of course, there’s no certainty in future predictions, and the best time to sell may be now.

For more information on M+A transactions and industry insights, read our blogs.