An MBO can be a lengthy undertaking, with numerous aspects that require navigating. It’s vital that you approach one in the right way to ensure that negotiations go well and that, ultimately, the process is a smooth and successful one that allows you to fulfil your aims.
Strategy-lead design agency fst has recently undergone an MBO in the form of its Legacy Deal. This saw three new partners take over the firm’s management and ownership. Here, the new generation of partners Charlie Butterfield, Andrew Brenan and Alex Cleveland, evaluate the key lessons they have learnt during this process and tips for other senior directors and management looking to take over the reins.
One of the most important things to consider when taking over a business is your level of control. It is imperative that your contractual rights give you the freedom to make correct business decisions, or you risk the ex-management still having certain powers over the business. By addressing the level of control, for example veto rights, you can ensure that as a new partner you have the contractual ability to make effective decisions.
2. Read the contract and read it again
Legal talk can be dull and confusing, which may encourage you to skim read a contract. However, it is important to understand each part of the contract and its implications. It is a good idea to remove any vague or ambiguous wording so that both parties are aware of exactly what they are signing. This will help to avoid any future arguments over the contract before they materialise.
3. Do not be afraid to have awkward conversations
During the process of finalising the contract, you may need to make changes or discuss certain points. You will inevitably run into some awkward conversations with management and it may seem easier to back down and accept their terms. To make sure the transition period of ownership is as seamless as possible, you cannot be afraid to have awkward conversations. You must be clear, remove the emotion and be upfront about what you will or will not negotiate on.
4. Risk losing in order to win
Sometimes to get the best outcome in business you have to take risks. If you remain complacent then the company can become stagnant in its growth. To truly succeed and be happy in business you must only do things that you want to do. Even if it seems counter-productive. It is crucial to stick to your own moral compass and be fearless when doing so.
5. A principle is not a principle until it costs something
We strongly believe in sticking to your own set of beliefs and principles, as this will land you with the greatest outcome for yourself. It is all well stating these principles, but it is equally important to follow through with these. There is no point in setting these principles unless you are willing to actually make a sacrifice in order to stick to them.
6. Ensure clients’ cultures align with yours
With your new-found control of the business, you have the chance to create or maintain the company culture based around its beliefs and values. fst believes that the key to a happy and functional business is to only work with clients that align with the culture you have instilled. It is very easy to look at a potential client as a cash injection and, although you may be excited that a client wants to work with you, it is just as important that you consciously chose them. At fst, we use a tool to measure a client’s values, strengths and ultimately their compatibility with us to determine whether we want to work with them.
7. Find partners with diverse skills and shared mindsets
Work with partners who have a diverse skill set to put you ahead of the competition. For example, each new partner at fst specialises in a particular area; design, strategy or client services. This gives a clear dynamic and means everyone in the company is clear about what the new partners’ roles focus on. By having similar skillsets, interference and confusion can become apparent - this can complicate the day-to-day running of a business. It is also vital that partners share the same mindset, as conflicting views can cause disparity and conflict.
Click here to read BSR's guide to Management Buyouts. If you're wondering whether an MBO is the right move for you, read our piece on Making a management buyout the most attractive deal on the table.
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