a2 objectives and strategy – unit 6
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
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
• 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
• 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
Information sourced from http://www.chorion.co.uk www.bbc.co.uk
Finance
Reason sold
Information sourced from www.bbc.co.uk and www.peacocks.co.uk
Finance
Reason for sale
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
• 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?
• 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