Business Arena

Raising Capital for Management Buyouts

Written by The Gamer

Raising Capital for Management Buyouts

Business change hands thousands of times a year, especially within Australia where the market is on an ever-increasing ascent. With company owners offering their agencies for sale, new buyers are often faced with one main predicament – and that’s being able to afford the buyout and take over the company.

An MBO, or a Management Buyout, can be as affordable or as expensive as the companies’ reputation and financial capabilities dictate. In some instances a company can be purchased for as little as a few thousand dollars, but when dealing with a larger organisation, the costs can quickly turn into five, six and even seven figure settlements.

Raising Capital for Management Buyouts

In order to purchase a company from its parent agency or owners, the new buyers will need to obtain funding. There are two main ways to do this. The first is to obtain the funds in their entirety without the assistance of a finance agency and cover the costs. This can be a very hefty expense however, and is one of the main reasons why buyers opt for the second solution.

This solution is to apply for funding from a third party lender – and one that can cover the initial cost, whilst accepting repayments over time. Although these are the two main ways to raise capital when buying a company out, there are other options and these include:

Offering Shares within the Business

Many investors make a point of searching for business opportunities; especially those that relate to buyouts. This can make things much easier by taking to the internet and advertising the opportunity to those that may be interested. Although the share of each owner may be lessened; the financial potential brought to the table by all parties can help to make the individual costs much lower.

Partnering with Other Agencies

Some companies up for sale may appeal to a variety of industries – and in these cases it can become an option for more than one agency to invest. This can especially be the case when buying a larger organisation and one that will likely offer a greater number of facets and departments. In these instances, sharing the financial responsibility can be very beneficial.

Seeking Alternate Funding

Although the majority of business transactions will require the full sum to be paid upon completion of the sale; the manner in which the funding is sourced doesn’t actually matter. If there are three buyers for example, then one may choose to finance their third of the purchase with their own cash, another may take out a loan and the final one may seek financing from a lending company.

Fortunately there are many ways to obtain capital in this day and age – if in doubt, the best place to start is by turning to a financial advisor to offer up solutions and options that may be suitable.

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The Gamer