Vision-Setting and Management Buyouts

Posted on: July 13th, 2022


Management buyouts are time-tested and seamless ways to transition business ownership. Based on a foundation of trust, most sellers and senior managers are able to easily navigate complex valuation and negotiation issues that often thwart third-party buyers. When closing a management buyout, owners and managers operate within their relationship comfort zone, leading to high levels of process transparency and transactional alignment.

With deep seated owner-management relationships, the management team’s thinking is often an extension of the owner. While this is conducive to facilitating a management buyout transaction, this can lead to the emergence of comfort zones and group think in management decisions. Managers often do things they way the owner wants them done without critical thinking about better approaches. This is particularly prevalent in closely held, family businesses where the owner has an authoritative presence and the senior managers have been in their roles for decades.

A management buyout is a historical event in the lifecycle of a company and gives a company an opportunity to reset strategy and establish new directions. When management buyouts participants operate the company the same way as prior ownership, they miss the opportunity to build transformational value. They key to ensuring new ownership avoids the comfort zone of historical complacency is to bring a ruthless, objective assessment to the newly acquired business.

Bring in outside experts to deep dive into the various departments and benchmark system, resource, and process quality. Outside experts are unencumbered of attachment to legacy ways of doing things. They are not beholden to organizational inertia or sacred cow practices. They will look at things with a fresh set of eyes with a view to what is there versus what could be there. This practice will unlock higher levels of vision setting for new ownership and help them achieve higher levels of performance.