A Vendor Funded Management Buy-Out (MBO) is a transaction which allows you as the owner to sell your business to your management team. You would expect to be taxed on capital gains at 10% with Entrepreneur’s relief.
Following completion of the transaction, your management team will become the business owners. You will continue to be involved in your business as an investor, and you may also want to continue to support the management team.
The basic structure is as follows:
- Your management team form a new company (Newco).
- Newco then acquires all of the shares in your company and pays for those shares out of the future cash flow of the business over a period of time. Whilst this means that the management team does not have to provide as security any of their assets as in the case of a bank loan, you will need to think carefully about the legal protection you would want in the event that the business does not continue to be successful.
- If your company has surplus cash, part of the payment for the shares could be in cash.
- You may also want to keep a minority shareholding in the company so that you can share in the upside.
A Vendor Funded MBO could be followed by investment from angel investors or venture capital funds, or a trade sale.
Are you interested in learning more about a Vendor Funded MBO?