Glossary
Management buyout
The purchase of a business by its existing management team, usually funded by a combination of the team's own money, external investment and debt. Often shortened to MBO.
In plain English
In an MBO the people who run the business buy it from its owners. Because management teams rarely have enough capital to pay the full price, an MBO usually involves an investor, debt funding, or the founders accepting part of the price as deferred consideration paid out of the business's future profits.
Why it matters to founders
An MBO can be an attractive route for founders who want to step back, keep the business independent and reward the team that helped build it. It also has limits: the price is constrained by what the team and its funders can raise, and a founder who accepts deferred payment is relying on the business's performance under new ownership. Comparing an MBO with a trade sale is often part of understanding the strategic options available.
What to watch for
- The management team is on both sides of the conversation, as employees and as buyers, which needs careful handling.
- Funding structure determines what the founders receive and when.
- Investors backing an MBO will conduct due diligence much as a trade buyer would.
- Valuation is still a negotiation, informed by what other buyers might pay.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.