Management Buy-In For SME Business Owners
Most business owners understand the general concept of a Management Buy Out (MBO) where existing staff agree to buy out the owner. What is less understood is a Management Buy-In (MBI) from an outside leader.
SME business owners turning over less than $15M are unlikely to be the target of an MBI via a private equity firm. However, there are other options for a smaller SME to bring in a talented leader to gradually buy them out. This is an option that is not well known however it can turn a business owner into a business investor in their own company. Through this, they can improve both their wealth and lifestyle. Our ageing population means there is a reduction in the incoming leadership pool as baby boomers exit their businesses resulting in strong competition for the business that is on the market for a direct sale. A gradual exit can widen the pool of prospective owners.
How could an MBI work?
A talented leader with some equity is identified who buys into the business and works with the owner as part of an agreed plan. The owner can then start stepping back and work on the parts of the business they enjoy and are good at. The new leader brings fresh ideas and energy to grow the business. The owner continues to get dividends while at the same time receives higher capital payments as they sell down their shareholding. The result should be a greater financial return than through an outright sale.
Where can they be found?
There are talented leaders, generally in corporate roles who are either tired of the corporate life, moving back from overseas or subject to large corporate cutbacks. They have a latent entrepreneurial streak however often not aggressively looking to start up a business. Like the SME business owner, they are not aware that gradually transitioning into a business is a viable and affordable alternative for them. They also like the idea that the existing owner is still working on the business with a vested interest in it growing.
Some owners will want to exit completely over time while others may want a business partner who has some “skin in the game”. With either option, executive search techniques and existing networks are often the best way of finding these people.
Mike Warmington is a Director of Platform 1 NZ Ltd who specialise in using executive search techniques to find people with capability and equity for SME business owners wanting to transition.