MBO (Management Buyout)
A transaction in which the existing management team acquires the company, typically with backing from a private equity sponsor.
Also known as: Management Buyout
One-line definition
An MBO aligns ownership and management: the team running the business buys it, usually co-investing alongside a PE fund that provides the majority of equity and arranges debt.
Advantages
- Continuity of management reduces integration risk.
- Managers have deep business knowledge, reducing due diligence uncertainty.
- Alignment: managers have skin in the game.
TS angle
MBOs can have conflicts of interest — management knows where the bodies are buried. TS teams must be alert to information asymmetry and management's incentive to present optimistically.
Related terms
LBO (Leveraged Buyout)
An acquisition financed primarily with debt, where the target's cash flows service the leverage and equity returns are amplified.
MBI (Management Buy-In)
An acquisition where an external management team buys into a company, replacing or supplementing existing management.
SPA (Share Purchase Agreement)
The definitive legal agreement governing the sale and purchase of shares in a company, including price, conditions precedent, representations, warranties, and indemnities.
Earn-Out
A deferred payment mechanism where part of the acquisition price is contingent on the target meeting agreed financial or operational milestones post-closing.