With Management Buy Out (MBO) the management team of a business purchases the business from the current owner. The purchase may be financed using Personal Savings, Bank Loans and Venture capitalists.
Given the demographic situation where thousands of baby boomers are retiring each day, management buyouts are almost certainly expected to grow significantly. Senior managers in many businesses will lean forward to buy the business they work in when owners retire. In many cases the buyouts may be leveraged management buyouts (LMBO) where buyers use company assets as collateral to secure financing. Usually, MBO’s are funded using personal assets, external financing (Private Equity groups) and seller financing. Management Buyout (MBO) is different from Management Buy-in (MBI). With management buy-ins (MBI), a team of outside managers buys a business.
Usually the management team knows the business and its prospects very well, so the risk from transition is reduced significantly. Furthermore, the team can use its expertise in the business to grow the business rapidly after the buyout. That said, it is still critical for the management team to complete feasibility analysis of the initiative, complete a business plan, pick a great management team and remain low-key. Additionally, the MBO team should be completely transparent with the owner and take permission before disclosing and confidential information. Feasibility analysis and business plan are also critical to raising money for the buyout / buy-in.