If there is no successor within the family, a management buyout can be a good solution—not just for the selling business owner.
According to the latest figures from the IfM Bonn, succession planning is on the horizon for approximately 150,000 family-owned businesses between 2018 and 2022. For about 47% of these businesses, an external succession solution must be found, as the business owner cannot ensure succession within the family. Furthermore, the business stake often accounts for 80%–90% of total assets, and there is insufficient capital available to secure retirement benefits. In such situations, the company’s own employees are often the first point of contact for business succession.
It is not uncommon for companies to decide, for strategic reasons, to sell off parts of the business that can thrive better in a new environment. Here, too, the company’s executives are attractive potential buyers.
Reasons for Becoming Self-Employed
The motivations for executives to acquire a company are diverse. The most common reasons cited are the entrepreneurial challenge and a belief in the company’s success. Other factors driving the move to self-employment include freedom to make decisions, independence from corporate directives, long-term wealth accumulation through increasing the company’s value, and the prospect of a higher income.
Company owners are also interested in succession planning with executives. In addition to preserving the company’s tradition, the lower profile of the sales process is often cited, as is the preservation of the location and the employee structure. Against this backdrop, business owners are quite willing to sell their companies at prices below current market values.
Financing
A frequently cited obstacle to selling to executives is the lack of funds to finance the acquisition. In many cases, this therefore requires the involvement of equity partners. The number of potential equity partners is currently very high. In addition to traditional financial investors, an increasing number of high-net-worth individuals are also interested in direct equity investments in companies. These investors are often willing to participate as minority shareholders and contribute their business contacts and experience, which help to advance the company. This benefits not only the company but also the executives, who gain new opportunities as a result. To ensure that employees, customers, suppliers, and even banks are not unsettled, entrepreneurs are often willing to assume a buyback obligation for a limited period.
Overall, a management buyout offers all parties an opportunity to achieve their goals.
