MBO as an exit strategy

Published in: BusinessBrief Magazine (Oct-Nov 2024) | Page 48 – 49
Written by: Liz Kolobe | Partner | Agile Capital

Successful entrepreneurs will seek to exit a business for many reasons, and there are several different routes. No matter the reason, business owners must plan carefully, as this process will include finding the right partners to ensure success.

Private Equity (PE) is worth considering, especially if it can include a Management Buyout (MBO) as an exit strategy.

PE teams will always seek to invest in businesses with a solid, established track record and room for organic growth. Most PE companies are sector agnostic, but a few have carved a specialised niche for themselves. Business owners should do some homework before approaching any organisation for initial discussions.

Why consider an MBO?

When entrepreneurs grow a business, they surround themselves with like-minded individuals committed to the company and build up the ideal team over time.

This team is typically made up of people who deeply understand the business, from products and services to staffing and business objects.

It’s worth noting that as part of any exit strategy, there needs to be a successor in place, preferably one who is already running the business before the final exit. This presents the perfect opportunity for an MBO as the management team remains in the ideal position to ensure a company remains viable and sustainable, and they become shareholders alongside PE partners.


PE investors are unlikely to invest in a business where the founder is still in charge and plans to exit fully. Investors typically look for a clear and tested business strategy, especially regarding succession planning.

MBOs in corporate structures

Other circumstances where MBOs are common are where a business forms part of a more significant corporation or group but is run independently by its management team. The management teams often get to a stage where they want their independence and recognise that they have all the skills to make the business successful.

PE partners are ideal for such teams as they can bring financial muscle and other added value to a relationship. PE investors will back such management teams to take over the business they know and have run for many years and become shareholders alongside them to ensure alignment for the next stage of their business.

Many PE firms prefer or are more receptive to an MBO, as it maintains customer confidence and relationships and can mitigate any risk factors inherited by a new owner. Appreciating the industry-specific knowledge embedded in existing executive management cannot be underestimated in a PE partnership. It also ensures that PE partners have first-hand knowledge of clarity around business goals and objects that are key for sustainability and growth within the business.

Exit strategy

In the context of any exit strategy, it is essential to understand the complex and diverse universe of buyers that may be out there in the market. This includes any specific requirements of a potential buyer, for example, empowerment requirements, or a buyer who does not compete with key clients.

…management teams often get to a stage where they want their independence and recognise that they have all the skills to make the business successful.”

As a key local PE player, we also recognise and support Black Economic Empowerment (BEE) as an imperative, as it is an integral part of doing business in South Africa. There is immense value in a real BEE partnership, and it should be part of any serious considerations management teams bear in mind when looking for a PE partner.

Added value

PE partners should be able to offer additional benefits beyond the much-needed liquidity. The added value would include access to skills and expertise that the selected PE team would bring to the business post-investment, the ability to assist with effecting structure, good corporate governance and inorganic growth through acquisition where either party identifies these opportunities.

Any management team looking to accelerate business ownership would do well to look for a PE team that is mutually aligned to generate success.◼

CONTACT US

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info@agilecapital.co.za

Agile Capital is an astute and principled South African mid-market private equity investment firm, offering a solid investment track record and long term growth prospects

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