Advantages to a management or employee buyout
A management or employee buyout ensures the smooth continuation of the business, because the transfer of management, and over a longer period, ownership, is to people who have a good understanding of the company and its potential, and they are often well-known by clients, suppliers, and financial partners.
Employees-turned-owners often see an increase in their motivation, their sense of belonging, and loyalty. Not only do they keep their jobs, but they become autonomous. Their power to influence the growth of the company has increased. They also see the opportunity to increase their personal wealth. Having company growth first in their thoughts is very likely to manifest in increased productivity and performance. They know the company’s potential and they are well acquainted with the market. They will innovate with more confidence.
These new managers and owners are usually better accepted by the employees. They already know which problems are likely to arise and they can find strategies to limit conflict. The same goes for possible shortcomings of the company - the employees are already aware of them and know if they can be fixed and the way to do it.
The financial partners (banks, venture capital investors, etc.) are generally reassured by the expertise of the management in place. The majority of key employees remain in the service of the company. The chances of the company’s continuation and growth are increased.
In addition, at the time of the transfer, the seller himself feels safe, because he does not have to divulge as much confidential information as he would in a sale to a third party.
Finally, employees have a good idea of what they are buying, and they will be motivated to protect the intellectual property of patents, the products the company intends to develop, and the strategies already conceived, to name a few examples.
This type of succession can materialize as quickly as a sale to a third party. The confidence generated by having worked together and knowing the company can accelerate the negotiations. The transfer of ownership must, after all, conform to trade practice. The steps of the process will be essentially the same as those undertaken in the situation of a purchase by a third party.