Management Buy Out (MBO)


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.

Some of biggest mistakes in MBO / LMBO are:
  • Over valuing and / or over paying for a business.
  • Taking on too much debt financing.
  • Not getting the right M&A advisors involved.
  • Not creating a strong board of advisors and board of directors.
  • In ability to anticipate deal breaker issues and address them.
  • Not being persistent because M&A deals are seldom smooth and straightforward.

Disclaimer: provides business for sale classifieds. All business for sale and other business opportunities are not an offering or purchase recommendation by We rely on the accuracy of the content submitted to us by business owners and intermediaries representing business owners. A business buyer must seek the advice of a Business Broker or Business Professional such as a lawyer, financial consultant and accountant before closing the deal. Please review our Disclaimer for more details.
Buyer / Seller Beware: Buyers and Sellers must be on guard and must consult a Business Broker before making / accepting an offer or meeting face-to-face (in person).
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