Management Buyouts Explained: How Halo Design's Team Bought the Agency They Ran

A management buyout (MBO) is when the people who already run a business buy it from the owner. It works best when the management team knows the business, the numbers are clean and the revenue isn't dependent on the founder or one client. Funding usually combines personal money, borrowing and payments to the seller over time.

What happens when you remortgage your house, buy the business you work for, have two young children, and discover that one client is 80% of your revenue?

You learn quickly.

That's the story of Nick and Jessica Bain, who own Halo Design, a creative agency in Southbourne. I went to see them for Dorset Business Matters, and it's one of the clearest real-world examples of a management buyout I've come across.

So let's use it. First, the basics.

What is a management buyout?

A management buyout is when the existing management team buys the business, or a controlling share of it, from the current owner.

For the seller, the buyers already know the business, the clients and the team. That usually means less disruption, more confidentiality and a smoother handover than selling to a stranger.

For the buyers, you're not starting from zero. As Nick and Jessica put it:

"We kind of have a ready-made business… we've got clients. We can hit the ground running and actually do the things we wanna do."

For the team and the clients, it's often the least disruptive kind of sale. The faces don't change.

How did Halo Design's management buyout happen?

Nick had worked at Halo for around ten to twelve years and was effectively acting MD. The previous owner "wanted to basically exit the business." Nick and Jessica had always talked about starting a business together. The opportunity came up and they took it.

The deal was discussed in 2021 and the documents were signed in 2022. They had two children under five. They'd just finished an extension on the house.

And they funded it themselves:

"All self-funded. So we remortgaged the house and bought a business."

The agency had around 13 people when they bought it. It grew to as many as 27 and is around 20 today.

Brave? Yes. They'd be the first to say a bit of naivety helped. If they'd known everything they know now, it "would be a harder decision to make."

What are the biggest risks in a management buyout?

For Halo, the biggest risk was sitting in plain sight.

"When we bought the business, we had one client that was 80% of the business… One that we very much went into with our eyes open… That was our priority, was to really de-risk that."

That's customer concentration risk, and it's one of the first things any buyer looks for. If one client leaves, does the business survive? In an MBO, the managers usually know about the risk already. The question is whether they price it in and have a plan to fix it.

Other common MBO risks:

• Too much debt. If the deal is funded with heavy borrowing, the business has to service that debt out of profit. A bad year hurts twice.
• Overpaying. Managers can get emotionally attached to the deal. Get a proper valuation.
• Owner dependency. If the seller was the main relationship holder, some clients may leave with them.
• Going from manager to owner. Running a department and carrying the whole P&L, payroll and personal guarantees are not the same job.

What would Halo do differently?

I always ask guests whether they'd do it all again. Nick and Jessica said yes. Probably differently.

Their main lesson was to do more planning before completion, especially on due diligence and how they'd structure the team afterwards:

"When you're going through the process… you're talking to solicitors, you're talking to the previous owner, negotiating, and actually that's all your focus is… I think actually maybe some more planning beforehand."

And their first piece of advice for anyone doing an MBO?

"Get a good accountant. Have a good accountant. Critical… The numbers are really important."

Even experienced managers often only see the numbers "on the surface level". Owning the business means really getting to grips with what it costs to run, and planning cash flow.

How are management buyouts funded in the UK?

Every deal is different, but most MBOs use some mix of the following. This is a general overview, not financial advice. Talk to an accountant and a corporate solicitor before you commit.

• Personal funds. What it means: Savings, or remortgaging, as Halo did. Things to weigh up: You keep control, but your home and savings are on the line.
• Bank or asset-based lending. What it means: A loan secured on the business, its assets or its debtors. Things to weigh up: Repayments come out of profit. Lenders will want strong numbers and often personal guarantees.
• Deferred consideration (vendor finance). What it means: The seller is paid part of the price over time, out of future profits. Things to weigh up: Common in SME deals. The seller stays invested in the business doing well.
• Private equity or investors. What it means: An investor funds part of the deal in return for equity. Things to weigh up: More capital, but you give away a share and some control.
• Employee Ownership Trust. What it means: The business is sold to a trust that holds it for all employees, not just managers. Things to weigh up: An alternative to a classic MBO. Can be tax-efficient for sellers, but the rules have changed recently. Take specialist advice.

Most SME buyouts I see end up as a blend: some personal money, some borrowing, and part of the price paid to the seller over time.

How do you make your business MBO-ready?

This is the bit for owners.

If you'd like your own team to buy the business one day, the work starts years before the conversation. It's the same work that makes a business valuable to any buyer.

1. Build a leadership team that can run it without you. If your managers can't make decisions without you today, they won't be able to buy it from you tomorrow. Start here: how to build a leadership team.

2. De-risk the revenue. No client should be big enough to sink you. Halo had to fix that after they bought it. Better to fix it before you sell.

3. Clean up the numbers. Monthly management accounts, a clear view of margin by client or product, and a cash-flow forecast. Buyers fund deals from future profit, so they need to trust the figures.

4. Get yourself out of the day-to-day. I've written about this a lot, because it's the thing that holds most owners back: build a business that doesn't need you.

5. Know what it's worth. And how much of that your team could realistically fund. Read what is your business worth?

6. Plan the handover. Who takes which relationships? How long do you stay? On what terms?

MBO-readiness checklist

• A management team that already runs the business day to day
• No single client big enough to sink the business if it left
• Monthly management accounts and a 12-month cash-flow forecast
• Key processes documented, not living in your head
• An independent view of value
• A rough funding plan your team could actually achieve
• A timeline for your exit and your role afterwards

What if your team can't, or won't, buy the business?

Then an MBO isn't your exit. That's fine. It's far better to know that now than at 64.

The alternatives are a trade sale, a sale to an outside individual buyer, investment, or passing it on within the family. For owners who want to reach serious buyers directly, without a broker's success fee, I co-founded FairExchange with Ross Bugden FCCA. It's a UK marketplace where business owners and buyers meet directly. It's free to join; listings are paid, with no seller success fee. You can read how it works on the sell your business page.

Whatever route you take, the preparation is the same. A business that runs without you, with clean numbers and spread-out revenue, is easier to sell to anyone, including the people who already work there.

Thinking about an MBO, from either side?

If you're an owner wondering whether your team could buy you out, or a manager wondering whether you could buy the business you run, let's talk it through. My scale and exit programme and business exit strategy work are built for exactly this.

Book a free Discovery Call at simonellson.com/contact or call 01305 566150.

And listen to the full conversation with Nick and Jessica on Dorset Business Matters. It's honest about the hard bits, which is why it's useful.

FAQs

What is a management buyout?

A management buyout (MBO) is when a company's existing managers buy the business, or a controlling share of it, from the owner. The buyers already know the business, which usually makes the handover smoother and more confidential than a sale to an outsider.

How does a management buyout work in the UK?

The owner and management team agree a price, usually after an independent valuation. The managers raise funding, lawyers and accountants carry out due diligence, and the deal completes with the seller often paid partly upfront and partly over time.

How do managers fund a management buyout?

Usually through a mix of personal funds, bank or asset-based lending, deferred payments to the seller, and sometimes private equity. Halo Design's founders funded their MBO themselves by remortgaging their house.

What are the risks of a management buyout?

Common risks include too much debt, overpaying, customer concentration, and losing clients who were loyal to the outgoing owner. Managers also have to adjust from running part of a business to owning all of it, including the cash flow.

Is an Employee Ownership Trust the same as an MBO?

No. In an MBO, a small group of managers buys the business. An Employee Ownership Trust buys the business on behalf of all employees. Both can work for succession; take specialist tax and legal advice on which suits you.

How do I make my business ready for a management buyout?

Build a leadership team that runs the business without you, reduce reliance on any single client, produce reliable monthly management accounts, document key processes and get an independent valuation. Start several years before you plan to exit.