The abbreviation “M&A” stands for Mergers & Acquisitions and is a collective term for all processes related to corporate transactions. The following outlines a typical professional process for selling a mid-sized company. Afterwards, the advantages of a Management Buy-Out (“MBO”) and key aspects for successful implementation are examined.
TYPICAL M&A TRANSACTION PROCESS
A professional and well-structured M&A transaction process often increases the likelihood of a successful company sale and can significantly enhance the achievable sales proceeds. A typical process for the sale of a mid-sized company can be divided into four phases with different focal points and usually spans a period of six to eighteen months. The timeline is extended particularly when a suitable buyer is not immediately apparent and potential investors must be identified in the international market.
Preparation Phase:
In this phase, the target company is analyzed. Strengths and weaknesses, as well as a market-oriented value indication, form the basis for the sales strategy. The result is a sales narrative that presents the company objectively yet appealingly and highlights its value drivers. Based on the business model, industry structure, and positioning, potential buyers and investor groups are researched. Internal solutions may also be considered, such as a takeover by existing management in the form of an MBO.
Marketing Phase:
With an anonymous short profile of the company—the so-called teaser—potential buyers are approached personally or by phone. If basic interest exists, a confidentiality agreement is signed to regulate the handling of sensitive information and the consequences of misuse. Based on an information memorandum—a comprehensive sales document describing the company in detail, outlining its positioning, and presenting historical special effects as well as future opportunities—interested parties can assess and make indicative valuations. Insights can be deepened through management meetings with owners and executives. The goal of the marketing phase is the submission of indicative offers from potential buyers in order to proceed with selected parties to the next phase.
Transaction Phase:
After analyzing and negotiating the indicative offers, it becomes clear whether one or more buyers will sign a letter of intent, which sets out the transaction structure, purchase price, due diligence, and timeline. Following signature, the seller and management—often with the support of an M&A advisor—provide detailed company information in a virtual data room. The interested parties, often in parallel, conduct due diligence on legal, tax, financial, and commercial aspects, usually with the help of specialized advisors. These findings form the basis for purchase price confirmation and influence the negotiations of the purchase agreement.
Execution Phase:
After completion of due diligence, the goal is to finalize the transaction, usually with one buyer. The purchase agreement formalizes the structure and purchase price models, while warranties, guarantees, and indemnities are negotiated with experienced corporate lawyers. After fulfilling any closing conditions, the sale of the company is legally completed.
MANAGEMENT BUY-OUT – AN ATTRACTIVE OPTION FOR MANAGERS AND OWNERS
A straightforward solution in a company sale is to look for buyers within the business itself: an MBO refers to the acquisition of a company by one or more existing managers. If the financing is predominantly debt-financed, it is called a Leveraged (Management) Buy-Out. For the owner, this means handing over their life’s work into familiar and often trusted hands. Even if management rarely offers the highest purchase price, an MBO has numerous advantages in the M&A process that should not be underestimated:
- If the pool of potential buyers is limited due to industry or business model, an MBO can be a highly attractive option.
- Where the business is heavily dependent on the owner or individual managers, selling to outside buyers may be challenging—an MBO provides a promising solution.
- Negotiations with competitors carry risks, such as poaching of employees or customers despite confidentiality agreements. In addition, “change-of-control clauses” in customer contracts may create insurmountable hurdles. In an MBO, these risks are minimized, and management is usually already well known to customers.
- With external, especially international buyers, transaction costs for due diligence and contract negotiations can escalate. Since management already knows the company inside out, much of the examination can be skipped, and contracts can be kept leaner.
- A major advantage of selling to management versus external buyers is the significantly reduced liability for the seller after closing. Given management’s detailed knowledge, warranty claims or purchase price reductions post-closing are far less likely.
SUITABILITY OF MANAGERS IS CRUCIAL
In an MBO, the professional and personal suitability of the managers is critical for sustainable business success and for gaining financing partners’ trust. In addition to expertise and management skills, MBO candidates must also demonstrate entrepreneurial potential. Vision, decisiveness, and willingness to take risks are important traits. Specialized HR consultants can support the owner with cognitive and psychological assessments to select suitable candidates. Early preparation and continuous coaching can also help shape and strengthen an entrepreneurial mindset.
DIVERSE FINANCING OPTIONS
The most common reason for not considering an MBO is skepticism regarding financing. Experienced financing advisors can help structure sustainable financing from a variety of sources:
Public funding: Since MBOs often qualify similarly to business start-ups, public support (e.g., from KfW in Germany) can be leveraged alongside bank loans.
Equity: If buyers invest their own funds, this signals commitment to financing partners. Limited personal funds can often be complemented by subsidies. Equity contributions from investment companies may also be an option in larger deals.
Equity-like instruments: Mezzanine capital—hybrid between debt and equity—can bridge funding gaps, especially where banks require certain equity thresholds.
Debt from banks: Bank loans are usually the main component of MBO financing. The financing scope can be extended through guarantees or alternative funding solutions.
