Comment: Are management buyouts worth the gamble?

Diana Evans, group managing director of HotelshopUK, which includes Great Little Breaks, shares her experience of completing an MBO

One question that I frequently get asked is whether diving into a management buyout (an MBO) is a venture worth pursuing, and whether or not I would recommend it. The answer, as with many significant decisions in business, is nuanced; it depends heavily on individual circumstances. However, by sharing my personal journey through a management buyout, I hope to shed some light on the topic for those who may be contemplating a similar path.

I’ve been part of HotelshopUK since my university days, now more than two decades ago. From the outset of my career, I envisioned myself playing a pivotal role in the company’s growth and development.

As a member of the senior management team, I was privy to the exit strategy of Viv Hudson (HotelshopUK’s founder, and previous sole owner) as she neared retirement. The groundwork for preparing the business for sale began long before the notion of an MBO surfaced. Prior to considering the MBO route, we entertained numerous meetings with potential investors eager to acquire the company. While one deal came close to fruition, it ultimately fell through. However, these interactions gave us valuable insights into the financing aspect of such transactions – and also provided us with the foundations for how we could put together – and finance – an MBO deal.

From inception to completion, the journey spanned approximately 12 (long!) weeks. While, on the whole, it was fairly straightforward, the journey did have its ups and downs.

Thankfully, both parties shared a common goal: ensuring a fair deal, rather than “the deal of the century”. I suggest that these conversations (between buyer/seller) are best held before any formalities, so that both sides are able to work towards the same objective.

Occasionally, we had to set aside the formalities and engage in open, face-to-face discussions, bypassing unnecessary negotiations driven by external parties. This was critical. Solicitors ultimately want to bag the best deal for their clients, and this can lead to unnecessary back-and-forth negotiations.  Sometimes you just need to have the conversation face to face, buyer/seller, and to agree things in person.

The strength of the MBO team and your relationships with your fellow buyers will be tested throughout this process. Thankfully, my fellow co-owners – or, as I fondly refer to them, my ‘work husbands’ – and I have a very solid, robust relationship, based on a lot of mutual respect for one another.

At several stages throughout the process, I can honestly say that one – or all! – of us got the wobbles. There were often very late-night calls, early-morning texts, and meetings in the coffee shop where we would try to talk through the concerns that had led to sleepless nights. Anxieties about shouldering the responsibility for the livelihoods of all the staff, and the prospect of potentially having to put our homes on the line, understandably become quite scary when you really think hard about them. Communication is key! Be open and talk through any worries you may have; you’ll probably find that everyone is similarly concerned.

Investing time in crafting the heads of terms proved invaluable. While not legally binding, clarifying the fundamentals of the deal, upfront, facilitated smoother negotiations during the legal process because the bulk of the key deal-breakers were agreed before the solicitors got involved. This will also, usefully, help to keep your legal costs to a minimum… and so is something very much to bear in mind!

In my experience, management buyouts are without a doubt worth the gamble. They come with risks and challenges, but I wouldn’t change a thing. We were all delighted with the deal achieved – and now to be a proud co-owner of the organisation at which I started my career is, quite simply, a dream come true.

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