Last week I got a call from a CEO of small software company. His parent was in the process of selling his company. The process of selling the business was taking longer than expected and the price was below the range the seller really wanted.
He called to ask me if he thought he could lead a management buyout. After talking to him and reviewing the numbers, I told him - yes. Two days later he had a meeting with the parent and they had just accepted an offer from another buyer, and was starting due diligence.
The morale of the story is management waited too long. They waited until the parent company had exhausted their efforts THEN management went to ask for permission to pursue a buyout.
The best thing for management AND THE COMPANY is to give management permission to pursue their own buyout alternatives while the company is also shopping to sell the business outright.
Why is this good for the Company?
Because management is often able to come up with a BETTER total offer than the company can get selling the business outright. Also many businesses don't sell well to private equity firms, because they business doesn't have a lot of future growth potential. Yet, those same businesses, provide steady cash flows and an ability to service debt - that can be received as part of a management buyout. In the end management is able to pay a higher price to the seller AND get more ownership and control of the business.