Some companies turn out to be inefficient after a while. The way to save such a company may be to take control of it by the managerial staff. In what way? For example, by means of a management buyout.

What is a management buyout?

In short, a group of managers takes control of the company they work for, investing their own experience, knowledge and skills (and of course capital) in it and acquiring its shares. Hence the name: MBO (Management Buy Out), i.e. managerial buyout. The problem is that managers usually do not have the capital to take over the company from the owner. However, it can do so through a special fund. One of the companies managing private equity funds (including management buyout) is Avallon in Łódź.

The course of the transaction based on the example of a buyout with Avallon's participation

The first step towards a management buyout is to analyse the attractiveness of the business to be transacted. The staff who want to make a buyout ask the private equity fund management company (in this case Avallon) for an assessment. After a preliminary analysis of the project, the parties sign a confidentiality agreement and then (if the assessment was positive) a letter of intent. That is when the next, very important stage begins; it is time for a thorough analysis, covering legal, financial and tax aspects. This process takes place with the active participation of the buyout managers, who enable the company to accurately assess the condition of the company.

If this stage is successfully completed, the fund creates an investment offer, which is then presented to the owner of the enterprise. If the latter accepts the terms and conditions and the negotiations run without any major problems, financing is activated - i.e. the process of taking over the company by new shareholders. The closing of the transaction (after all necessary agreements have been signed between all parties concerned) means the mobilisation of the Fund.

The whole process usually takes about half a year. Thanks to the use of a private equity fund, managers have a greater chance of success of the whole enterprise, and additionally they incur lower costs.