M
anagement buyouts (MBOs) have rarely been more common. Interest rates are at their lowest
in decades. And while big MBOs such as the 2006 attempt on the ASX-listed Qantas make
the news, more private equity groups are now willing to invest in buyouts of businesses with
yearly revenues as low as US$8 million. Buyout specialists acknowledge, though, that an MBO remains
a testing management and leadership challenge.
The mechanics of an MBO are straightforward. A small group of senior managers – ideally no more
than five – takes over a business they already know. They bring in new equity and debt from specialist
funds, and the original owner may take their payments over three or five years. The new owners push
the business to perform at its absolute maximum, pay off some of the debt and later, perhaps, resell the
business at a profit.
But that’s just the rules of the game. What makes MBOs complicated are the high stakes involved.
Buyer and seller both put a lot on the line, not just financially but emotionally.THE
EMOTIONS
OF MBOs
THE
EMOTIONS
OF MBOs
Private equity money is raising the popularity of
management buyouts. But they pose not just financial
modelling challenges but emotional challenges as well.WORDS • DAVID WALKER118 | theceomagazine.com