The benefits of a management buyout
The recent economic recession and uncertainty around the global financial recovery has put pressure on many companies. Sustaining a business is being affected by rising costs such as overheads and taxes. At present, companies that are capable of growth are few and far between.
The question of survival may be answered by the need to focus on a company's core objectives, which often results in realigning the business strategy. This may result in owners or parent companies selling off parts of the business to streamline its operation.
Company sustainability or growth can be achieved by a management buyout. This allows the current management team to gain ownership of the company. The advantage of existing management taking on ownership of a business is being able to ensure a smooth transition during this change. The current management team will fully understand the company, its operation, supply chain, routes to market and potential growth.
Management buyouts (MBOs) are not restricted to personnel in the company's management team as they can also include employees from different levels of the organisation. Employees often have a strong view on how the company should be run and see their input as valuable to the success of the business. Employees from different levels of the organisation often have a better handle on its operation because they have been involved at ground level.
Management Benefits
Motivational levels can often increase as a result of MBOs due to a sense of loyalty and belonging. Managers that now own the company have the ability to influence how the business is run, how it can grow and can make the important decisions that are often left to parent companies. Factors such the protection of intellectual property, sales strategies and product development will be considered as top priorities.
With an increase in confidence, performance and productivity can also increase, making growth a very real possibility. As well as benefiting the company overall, this can also benefit the new owners individually as their own personal wealth will increase.
The process of changing company ownership is far quicker if it is being sold to existing employees rather than a third party. Negotiations can be accelerated due to an increased level of confidence between buyer and seller.
Employee Benefits
Maintaining a smooth transition is important for employees because it reduces feelings of uncertainty and anxiety over whether job losses will take place. In many MBOs, a new management team is appointed. They may have a different viewpoint on many of the current company operations, including staffing requirements. Unfortunately, this can lead to redundancies or reduced hours.
Employees throughout the company, from middle management to shop-floor staff, will benefit. As the company grows and becomes more profitable, there are likely to be wage increases and employee benefits such as pension schemes, private healthcare and bonuses.
Improved performance and productivity is not restricted to management. Employees will be more inclined to work for the people they know already and will feel more comfortable raising concerns.
Financial Partner Benefits
Management buyouts are also a sensible option for the banks, venture capitalists or investors that provide the financial backing to the company. These types of institutions can rest assured that the business will continue to be run by experienced managers and a good workforce.
This guest post is by Francesca, a freelance writer who is currently writing in collaboration with Rickitt Mitchell.