A Management Buy Out (MBO) is a way to change ownership within a company. Below we explain exactly what a Management Buy Out is, why you should do an MBO and what the difference is between a Management Buy Out and a Management Buy In (MBI).
Meaning Management Buy Out
In a Management Buy Out, a company is wholly or partially taken over by the current management. This can be one manager, but also the entire management team.
Reasons for a Management Buy Out
A Management Buy Out often occurs when the current owner want to make exit, but fails to find a replacement. For example, if succession from the family is not possible after all.
A company can also opt for an MBO to divest a branch that does not belong to the core business. With an MBO, the company does not have to be sold to a third party.
How does a Management Buy Out work?
An MBO is a good one exit strategy. Especially if the owner wants to get out, but no successor is available. The buyers often do not have enough resources for the entire investment themselves. But if the company's future looks bright, banks and investors are often willing to help with the corporate finance.
Because the buyer is internal, he or she already knows the company well. That is an advantage. A disadvantage of an MBO is that a good manager is not necessarily a good entrepreneur. But with good preparation this should not be a problem.
An advantage of the MBO is that both parties already know each other well. That is precisely why it is good to engage an external advisor. Then you run less risk of the personal relationship souring as a result of disagreements or negotiations.
Difference Management Buy Out and Management Buy In
An MBO is done by the incumbent management. With an MBI it is exactly the other way around, and an external manager or an external management buys a company. The buyer therefore forms the new management. An MBO is therefore internal, an MBI external.
We are also happy to explain to you what a Management Buy In is precise.