Glossary · UK
What is Management Buyout (MBO)?
A transaction where a company's existing management team buys the business from its current owners, often using a mix of their own money and borrowed funds.
Full Definition
A management buyout (MBO) is a transaction in which the existing management team of a company acquires the business (or a significant part of it) from its current owners -- whether that is a parent company, private equity investor, or founder looking to retire or exit. Because the management team rarely has enough personal capital to fund the whole purchase price, MBOs are typically structured with a mix of the managers' own money, external equity investment (often from a private equity firm backing the management team in exchange for a stake), and debt finance secured against the target company's assets and future cash flows -- when debt makes up a large proportion of the funding, the deal is described as a leveraged buyout. A related structure, a management buy-in (MBI), involves an external management team buying and taking over running the business rather than the incumbent managers; hybrid "BIMBO" deals combine elements of both. MBOs are common exit routes for founders wanting continuity of leadership, for private equity owners at the end of an investment period, or for corporate groups divesting a non-core subsidiary, and the resulting company typically carries higher debt levels immediately after the deal, meaning cash flow forecasting and covenant management become especially important in the years following completion.