What is an MBO?
A Management Buy-Out (MBO) is a financial transaction in which the existing management team of a company assumes control over a majority of ownership and day-to-day operations from the current proprietors.
In numerous instances, the management team might have already wielded substantial control without having formal ownership rights. The motivation behind an MBO can vary, encompassing factors such as a quest for increased autonomy, confidence in the company’s potential, or the prospect of enhancing value by implementing changes without external ownership interference.
The basic process
MBOs generally entail a multifaceted process, including negotiations regarding the purchase price, financial arrangements, due diligence, legal documentation, and other considerations. External financing typically arises from a blend of debt financing, deferred consideration, and contributions from the management team. In more extensive transactions, there might be an equity infusion from venture capital firms or other investors.
> Read our more detailed breakdown of the process.
Are MBOs risky?
MBOs can be fraught with risks and challenges, including securing financing, managing the ownership transition, and achieving the expected financial performance and return on investment. MBO opportunities only arise occasionally. Despite the financial commitment and hard work, many individuals are willing to embrace the risk, recognising that lasting value may elude them in a purely salaried role.
Are MBOs for big businesses?
MBOs are not confined to large corporations; they are notably prevalent among smaller businesses, especially in the intergenerational transfer of family-owned enterprises. Smaller businesses are often less appealing to external buyers, making an MBO the most viable exit strategy for the owners in many cases.
A substantial proportion of the MBOs we facilitate are family businesses, with turnovers ranging from £500,000 to £10 million.