The management ( MBO ) purchase is a form of acquisition in which existing company managers acquire most or all of the companies either from the parent company or from private owners. The management and purchase of debt became a phenomenon in the 1980s. MBO originated in the US and across the Atlantic, spreading first to Britain and across Europe. The venture capital industry has played an important role in the development of purchases in Europe, especially in smaller transactions in the UK, the Netherlands and France.
Video Management buyout
Ikhtisar
Purchase management is similar across all major legal aspects to other acquisitions of the company. The special nature of MBO lies in the position of buyers as corporate managers and the practical consequences that follow from it. In particular, the due diligence process is likely to be limited because buyers already have full knowledge of the companies available to them. The seller is also unlikely to provide any guarantee but the most fundamental to management, on the basis that management knows more about the company than the seller does and therefore the seller does not have to guarantee the state of the company.
Some concern about purchasing management is that asymmetric information owned by management can offer them an unfair advantage relative to the current owners. The likely future of MBO could lead to principal-agent, moral hazard, and possibly even subtle down-front manipulations of stock prices before sales through adverse disclosure of information, including the recognition of accelerated and aggressive losses, the launch of questionable projects, and surprising adverse outcome. Of course, such corporate governance fears are also present when senior management can now take personal advantage from the sale of their companies or assets. This will include, for example, a big parting bonus for CEOs after the acquisition or purchase of management.
Because corporate judgment is often the subject of uncertainty and ambiguity, and since it can be heavily influenced by asymmetric information or insider information, some question the validity of MBO and consider it potentially representative of an insider's trade form.
The likelihood that only MBO or substantial farewell bonuses being sold can create a negative incentive that can reduce the efficiency of various companies - even if they remain a public company. This is a substantial potential negative potentiality. Target company managers sometimes also establish a holding company for the purpose of buying the target company's stock.
Maps Management buyout
Destination
Management purchases are made by the management team because they want to get financial rewards for the future development of the company more directly than they would do as employees only. Management purchases can also appeal to sellers as they can be assured that a stand-alone company in the future will have a dedicated management team that gives a huge loss of failure and therefore negative pressure. In addition, in the case of purchasing management supported by private equity funds (see below), private equity will, given that there is a dedicated management team in place, the possibility of paying an attractive price for the asset.
Financing
Debt financing
Management companies usually do not have the money to buy the company itself. First they will seek a loan from the bank, provided the bank is willing to accept the risks. Purchasing management is often considered too risky for banks to finance purchases through loans. Management teams are usually required to invest significant amounts of capital for them personally, depending on the funding source/bank's personal wealth management team. The bank then lends to the company the remaining part of the amount paid to the owner. Companies that proactively shop for aggressive funding sources must qualify for total debt financing at least four times (4X) cash flows.
Private equity financing
If the bank does not want to lend, management will usually seek private equity investors to finance the majority of purchases. Most management purchases are financed in this way. Private equity investors will invest money in return for a portion of the stock in the company, although they can also lend to management. Proper financial arrangement will depend on the supporter's willingness to balance the risk with its return, with debt being less risky but less profitable than capital investment.
Although management may not have the resources to purchase the company, private equity houses will require that each manager make the investment as much as they can to ensure that management is locked by a very strong interest in the success of the company. It is common for management to mortgage their homes to earn a small percentage of the company.
Private equity supporters tend to have somewhat different goals from management. They generally aim to maximize their profits and make their way out after 3-5 years while minimizing risks for themselves, whereas management rarely sees beyond their careers in the company and will take a long-term view.
While certain goals coincide - particularly the main purpose of profitability - certain tensions can arise. Proponents will always impose the same guarantees on management in relation to the company that the seller will refuse to provide management. This "warranty gap" means that management will assume all risks of any defect in the company that affect its value.
As a condition of their investment, supporters will also impose a lot of provisions on management on how the company is run. The goal is to ensure that management runs the company in a way that will maximize returns during the supportive investment period, while management may expect to build the company for long-term benefits. Although the two goals are not always inappropriate, management may feel restricted.
European buying market was worth EUR43.9bn in 2008, a 60% decrease in EUR108.2bn transactions in 2007. The last time the buyout market at this level was in 2001 when it reached only EUR34bn.
Financing sellers
In certain circumstances, it is possible for the management and original owners of the company to agree to a deal in which the seller finances the purchase. The price paid at the time of sale will be nominal, with the real price paid during the subsequent years of the company's profits. The time scale for payments is usually 3-7 years.
This is a loss for the selling party, who must wait to receive the money after losing control of the company. It also depends, if the allotment is used, the returned profit increases significantly after the acquisition, in order for the deal to represent a gain to the seller compared to the pre-sale situation. This will usually only happen in very special circumstances. The optimal structure is to change the consideration of contracted dependents into contracts that have attractive benefits to the seller because they legally fix the total amount of future paid to them. This is paid like a quarterly annuity, and then the seller needs to secure the annuity by taking the guarantee of deferred deferred guarantee from an independent guarantor institution. The direct beneficiary of the guarantor is the seller and if the company being sold becomes a bankrupt, after its sale, with deferred payment deferred due to the seller, the guarantor will pay the vendor money on behalf of the buyer.
The vendor agrees to vendor financing for tax reasons, since the consideration will be classified as capital gain rather than as revenue. It can also receive some other benefits such as a higher overall purchase price than those obtained with normal purchases.
The advantage to management is that they do not have to engage with private equity or bank and will remain in control of the company once the consideration has been paid.
Example
The classic example of MBO involves Springfield Remanufacturing Corporation, a former factory in Springfield, Missouri owned by Navistar (at that time, International Harvester) that threatened to close or sell to outsiders until the manager bought the company.
In the UK, New Look was the subject of management purchases in 2004 by Tom Singh, founder of the company that floated in 1998. He is supported by private equity firms Apax and Permira, which now owns 60% of the company. A previous example of this in the UK is the purchase of Virgin Interactive management from Viacom led by Mark Dyne.
The Virgin Group has experienced some management purchases in recent years. On September 17, 2007, Richard Branson announced that the British Virgin Megastores arm will be sold as part of a management purchase, and from November 2007, will be known by a new name, Zavvi. On September 24, 2008, another part of the Virgin Comics group purchased management and changed its name to Liquid Comics. In the UK, Virgin Radio is also undergoing a similar process and becoming an Absolute Radio .
In Australia, another group of music and entertainment stores was subject to management purchases in September 2009, when Sanity owner and founder Brett Blundy sold the Entertainment Entertainment Division of BB Retail Capital (including Sanity, and Australian franchises of Virgin Entertainment and HMV) to the Head of Company Entertainment, Ray Itaoui. This is an undisclosed amount, leaving Sanity Entertainment to become a private company in its own right.
Hitman is a stealth video game series developed by Danish company IO Interactive. Previously published by Eidos Interactive and Square Enix. IO Interactive remains a subsidiary of Square Enix until 2017, when Square Enix starts searching for studio sellers, IO Interactive completes management purchases, regains their independent status and retains the rights to Hitman in June 2017.
See also
- Take over
- Purchase management
- Leveraged purchases - including secondary purchases
- Hash rate
References
External links
- The definition of management purchases
- Definition of buy-in management buyout
- Creative Management Purchase Strategy "
Source of the article : Wikipedia
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