Management / Employee Buy Out (MBO / EBO) – Series M&A Strategy 5

Employees can also buy their company

So let’s say you’re currently employed/hired by a certain company. You love what you do and you know everything you need to run that business but the company as a whole isn’t doing so well. That’s when  MBO comes in. MBO is short for “Management Buy Out”, which means the manager of that particular business buys that division as a whole and becomes CEO. In theory, even employees can buy the business from his/her employer which is called Employee Buy Out. EBO is a particular type of MBO where the employee buys the business and is an option sometimes chosen among SMEs. If you’re a person with big ambition, this may sound like a dream come true. But things are not that simple.

Acquiring a business through MBO isn’t grocery shopping.

The first problem is, the management and shareholders. Such decision must first be approved by the management board, and then agreed to by the shareholders through a shareholders’ meeting.

The second problem is the funds. How can a normal employee who is living on a decent salary prepare enough funds to buy a business? Perhaps it is possible if the business you’re about to buy is a money losing business, but then you should probably think twice before taking any action. If that business is running smoothly, you’ll probably need to show much more than your current savings and assets. Good news. There is a solution.

Get funded from professionals

That’s when MBO funds come into play. Funds that specialize in investing on MBO and EBO cases exist and they are capable of placing billions of Yen or millions of Dollars, even if you’re low on funds/credit.

One thing to note upon considering this option. Like any other funds, there are redemption periods for each case and the standard period for the funds we’ve worked with is around 5 to 7 years. This means that when you choose to work with MBO funds, you’ll need a plan to pay back the funds with interest or dividends within that period or find another investor who is willing to cover the liability.

So keep in mind that executing EBO or MBO isn’t easy, but still it is an option for a company to survive.

Case Study:

Revitalised a textile company after bankruptcy through EBO

In this series, we’ll explain why M&A can not only save many SMEs in danger but can also be a handy tool to strengthen your business quickly and efficiently.

To learn more about M&A for SMEs in Japan, don’t forget to checkout this book. (only available in Japanese)


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