What Is a Management Buyout?
A management buyout (MBO) occurs when the existing management team of a business purchases it from its current owners. This might happen when an owner is retiring, when a corporate parent decides to divest a division, or when a founder wishes to exit while preserving the business culture and team.
How Is an MBO Typically Funded?
Senior Debt
This is typically provided by a bank or specialist lender and is secured against the assets of the business. It is the largest component of MBO funding for most transactions.
Vendor Loan Notes
In many MBOs, the seller agrees to leave a portion of the purchase price outstanding as a loan to the purchasing entity, repaid over time from the business profits.
Management Equity
The management team will typically contribute their own capital - personal savings, equity release from property, or funds raised from family and friends. Lenders want to see skin in the game from the buying team.
Private Equity or Mezzanine Finance
For larger transactions, private equity investors or mezzanine finance providers may provide additional capital in exchange for an equity stake or a higher-yield loan instrument.
The Role of a Broker
Structuring MBO finance is complex. ABL has completed many MBO transactions across a range of sectors and deal sizes. We know which lenders have an appetite for acquisition finance and how to present the deal to maximise its chances of approval. Contact our team for a confidential conversation.