Management Buyouts

In the United States it has become commonplace for a company’s key managers to seek “A Piece of the Action” by acquiring stock in their firm through participation in a stock purchase plan or by buying shares in the open market. However, these methods of acquiring a stake in the company are often not available options for managers in a closely-held or privately-owned enterprise.

Another instance where this type of buyout is popular occurs when managers of a division of a larger company discover that their division is scheduled to be sold or closed down. Managers who are faced with this situation feel that if they had the capital, they could manage the division successfully as a stand alone business. However, in most instances the key managers do not have the capital to purchase the company or division from the present owner.

Traditionally, managers faced with this dilemma had very few options available to them. The most popular option was to go to a bank to borrow the capital required. Unfortunately, this option usually required that significant company operating assets would have to be pledged to secure the loan. This could stunt the future growth of the company or division.

The recent emergence of Private Equity Groups (PEGs) and the buyout funds they manage have changed the MBO landscape for managers wishing to acquire equity in their firm in a very positive way. Today, management teams have the opportunity to secure financial backing from Private Equity Groups by partnering with them in the buyout transaction. The result is that as the managers succeed, the PEGs investment increases in value. This process is now the most popular structure for management buyouts.

The Beringer Group has successfully designed, structured, and implemented MBOs for their clients and has close relationships with over one hundred of the leading Private Equity groups in the nation.

References are available upon request.