Practical Advice on Negotiating a Management Buyout

March 7th, 2017 Posted by Business is ART, Leadership 0 thoughts on “Practical Advice on Negotiating a Management Buyout”

Sbuyoutomeday you might have the option to buyout the boss…not PAY OFF…buy OUT. Last week, on the Business is ART podcast at the TrueChat Network, my guest was Jeff Adair of Jeff Adair Coaching. Jeff shared his experience and insights on the subject of management buyouts.

A management buyout is when the executives, managers, or employees of a business buyout the owner(s). When this happens, the roles and relationships immediately change – even before the transaction is complete – something Jeff learned the hard way.

Trust is Everything – Protect It

In his case, as soon as the management team informed the owners that they were making an offer, a level of suspicion arose between the parties, complicating the process and negotiation.

Jeff recommends a more subtle approach that might begin with this simple question, “What would you think of the management team making you an offer?” rather than a bold statement like, “We’re going to buy you out.”

You might even have an early discussion, before the owner is even looking to sell, to plant a bug in his/her ear, “Hey, if you ever decide to unload the business, please talk to me before spending a lot of time and effort looking for a buyer.”

Transparency is Key

Jeff also recommends the greatest degree of transparency be exercised before and after the buyout. Things to consider include:

  • Soliciting feedback and offering assurances to existing customers and prospects
  • Informing employees of what is happening
  • Defining and sharing the vision for the business with employees early in the process or immediately following the transition
  • Exercising open and honest sharing between the owner and the management team during the process (this is where any erosion of trust can hinder the process)

It’s a Lot of Work

Jeff cautions that you should not underestimate the amount of work and time that goes in to negotiating a management buyout. There are legal structures that have to be in place, roles and responsibilities agreed to and assigned, a determination of the value of the company to reach, funding to secure – the list goes on and on.

Do it Purposefully

As a final bit of advise, Jeff says that whatever you do, “do it purposefully.” Know why you want to in the first place. Share that with others. When you do, it makes everything else much simpler.

You can listen to this episode of Business is ART in its entirety by clicking here.

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