RESOURCES
Work Plan
Implementing a management buyout (MBO) is a difficult task. Management and its buyout team should focus on the following issues when trying to price, structure and implement a successful MBO.
Market Analysis
The buyout team should evaluate both the short- and long-term market potential for the new company, including competitive pricing issues. This entails an analysis of the industry, forecasted demand for the company's services and a review of its potential customers. This analysis should be integrated into the revenue section of the detailed MBO financial analysis described below.
Competition
The buyout team should evaluate the current and future impact of competition on the new company. The conclusions from this research should be integrated into the revenue section of the detailed analysis below.
Suppliers
The buyout team should assess the future availability of supplies required for efficient operation of the new company, including price trends and the probability of suppliers extending credit to the new leveraged company. The conclusions from this research should be integrated into the income statement and balance sheet section of the detailed MBO financial analysis described below.
Facilities and Equipment
The buyout team should evaluate the facilities and equipment of the company in order to determine the future capital requirements of the new company. The conclusions from this research should be reflected in the capital expenditure section of the MBO financial analysis described below.
MBO Financial Analysis
The buyout team should gather and review data to build an MBO financial model of the old company, the MBO transaction and the new company. The model should integrate historical financial performance of the company with future projections of the new company and include a detailed income statement, balance sheet, cash flow statement, valuation and detailed set of assumptions. The MBO model will assist in evaluating the following issues:
MBO Viability
The buyout team should analyze the financial viability of the new company. This will include analyzing the prospects of the new company raising and/or generating enough capital to properly invest in plants and equipment, service any debt and provide a market rate of return to any equity that may be needed to finance the MBO transaction.
Fair Market Value
The buyout team should analyze the fair market value of the company and the prudence of the MBO transaction under different capitalization and operating scenarios.
Productivity Improvements and Cost Reductions
The buyout team should evaluate whether productivity improvements and/or cost reductions will be required to successfully operate the new company. If productivity improvements and/or cost reductions are necessary, the buyout team should evaluate the potential areas where they can be attained and their impact on the new company.
MBO Financing
The buyout team should determine the structure of financing that will be required to support an MBO transaction at any given price, as well as the ability of the new company to meet these financial obligations in the future. Included with this analysis should be an evaluation of the likelihood of obtaining the required financing for the MBO and the possible sources for such financing.
MBO Ownership Structure
The buyout team should analyze the allocation of ownership between equity investors and management, as well as the size and terms of each of their investments.
MBO Feasibility Presentation
Upon completion of the MBO model, the buyout team should present to management its initial conclusions concerning the feasibility of the MBO. This should include the potential for raising the needed financing, the required governance structure of the new company and the need for productivity improvements or cost reductions and possible areas where such improvements or reductions could be implemented in the new company.
MBO Indication of Interest
If the management chooses to proceed, the buyout team should prepare and submit an indication of interest in purchasing all or a portion of the company.
MBO Letter of Intent
If an indication of interest has been submitted and the parties wish to enter into a letter of intent, the buyout team should assist in negotiating the letter of intent.
MBO Financing and Business Plan
The buyout team should assist management and the company to prepare an MBO financing and business plan, in addition to presentation materials that will be used in arranging financing for the MBO transaction.
Employee Communication
The buyout team should assist management and the company to communicate, educate and inform all employees about the status of the MBO transaction. This should include information about employee ownership (if any), the structure of the MBO transaction, the new company, the business plan and employee wages and benefits following the MBO transaction.
Preparation of Management
The buyout team should assist management, as needed, to prepare them to make presentations of the business plan directly to financial institutions for the purpose of raising financing for the MBO transaction.
Definitive MBO Purchase Agreement
The buyout team should assist management in negotiating the various contracts establishing the terms of the MBO transaction.
Raising MBO Financing
The buyout team should assist management in raising financing for the MBO, including presentations to sources of senior debt, subordinated debt and equity. Additionally, the buyout team should assist in negotiating the terms of financing with financial institutions.
Teaming with a Partner or Investor
The buyout team should assist managers in negotiating the terms of the investment with any partner or investor necessary to consummate the transaction.
Creation of the New Company
The buyout team should assist management in establishing the bylaws, articles of incorporation and ownership and control structure of the new company.
Coordination
The buyout team should orchestrate the efforts of the financial institutions, partners or investors, valuation firms, accountants, legal counsels to the lenders, partners and investors and any other professional advisers who may be required for the transaction.