Management buyout (MBO): How your own management team can become the successor to your company

What is a management buyout (MBO)?

Before we go into detail, we need a clear definition and distinction—so that you can confidently classify the MBO succession option.

Definition of MBO

A management buyout involves the purchase of a company by its existing management. This ensures the smooth continuation of the company. However, such transactions are generally rare, as management is often unable to pay the desired purchase price, even with underlying financing.

It is also possible to make a partial acquisition, for example of a single business unit. In this case, the acquired parts are spun off to form a new company.

Types of management buyout

Within a change of ownership by the existing management, several basic forms can be distinguished:

• Restructuring MBO: A restructuring MBO occurs when management takes over an economically troubled company. The aim is to get the business back on track for success through strategic changes and restructuring.
• Privatization MBO / Going Private: In a privatization MBO, management buys the majority stake in a publicly traded company and delists it from the stock exchange. This enables restructuring or strategic realignment without the pressure of public scrutiny.
• Institutional MBO: In an institutional MBO, management is supported by external capital providers such as the public sector or investors. The involvement of investors often enables a subsequent sale through an IPO or resale.

Differentiation of MBO from other models

MBI (Management Buy In): External managers buy into the company and take over its management. This can bring fresh impetus, but requires more integration work because the network, processes, and culture first have to be familiarized with. In practice, hybrid models are also implemented (e.g., MBO with external co-CEO).

EBO (Employee Buy Out): Not only management, but a broader group of employees participates in the company. This strengthens loyalty and motivation but is more complex in terms of structuring.

LBO (leveraged buyout): Not a form of succession, but a type of financing that involves a high proportion of debt capital. The purchase is mainly financed by future cash flows – with opportunities and additional risk.

When is an MBO particularly useful?

An MBO is a good option when there is no family successor, but the company has a capable, motivated management team. This model is particularly advantageous for customer- and employee-driven business models in which relationships, trust, and implicit knowledge constitute the value.

How does a management buyout work?

An MBO follows a clear path. The more thorough the preparation, the more efficient and stress-free the transition will be. In medium-sized companies, the process usually takes 18–24 months.

Procedure

The following steps are typical for an MBO:

1. Preparation During the preparation phase, the initial situation is analyzed: management clarifies its intention to purchase, the current owner examines their willingness to sell, and initial discussions on financing take place. This is also the right time to bring in experienced succession and M&A advisors to accompany the entire process.
2. Negotiation Once it is clear that both sides agree on the MBO, negotiations begin on the purchase price, payment terms, and framework conditions. The goal is to find a fair solution that is sustainable for both the buyer and seller in the long term.
3. Financing Parallel to or immediately after the negotiations, binding financing is secured. Whether equity, bank loans, or investment capital—the structure must be chosen in such a way that it covers the purchase price and does not jeopardize the economic stability of the company.
4. Closing The final step is the legal and economic transition. The purchase agreement is signed, the agreed payments are initiated, and operational responsibility is officially transferred to management. A planned transition phase facilitates integration and ensures continuity within the company.

Parties involved

In an MBO, several departments work together. Everyone has a clear role:

• Management (buyer): The existing management team takes over the company. It contributes industry knowledge and customer expertise, works with advisors to develop the purchase structure, and assumes entrepreneurial responsibility going forward.
• Existing shareholders (sellers): They decide on the sale, negotiate the price and terms, and help shape the transition (e.g., gradual or immediate).
• Investors: Banks, development institutions, private equity investors, or family offices provide debt or equity capital. They assess the risk and require reliable documentation and clear plans for repayment and further development.
• Advisory network: M&A advisors, such as Conpair, coordinate the entire process, lawyers draft and review contracts, and tax experts clarify tax issues. This helps to avoid mistakes and ensures that decisions are clearly documented.

Why is an MBO an attractive succession solution?

Before considering alternatives, it is worth taking a look at the particular strengths of MBOs – especially in small and medium-sized enterprises.

• Suitable when there is no family succession: If the next generation is pursuing other paths, an MBO enables a company-oriented solution without a cultural break or a lengthy external search.
• High level of trust: The seller and management know each other, which makes negotiations more objective and reduces transaction risks. Surprises are less common because both sides share the reality of the business.
• Continuity in the market and organization: Customer relationships, supplier conditions, and internal processes remain stable. This reduces friction losses and protects ongoing cash flow.
• Discreet, often faster process: Since there is no need for a broad bidding market, the transaction can be carried out confidentially and in a timely manner—an advantage for sensitive workforces and markets.

Financing an MBO: What are the options?

Financing determines whether the MBO is economically viable. It is important to have a structure that leaves enough room for investments and unexpected events. There are various options.

•   Management’s own funds: When management contributes its own money to the takeover, this not only demonstrates commitment and confidence in the company, but also improves the chances of securing financing from banks and investors. Own funds reduce dependence on external capital and allow for greater flexibility in repayment.

• External capital: Banks often finance MBOs through traditional loans that are repaid in fixed installments. Another option is a vendor loan: the previous owner grants the management a loan to finance all or part of the purchase price. This often creates leeway and can speed up the sale process.

• Equity capital: Investors such as private equity firms or family offices can provide capital and in return acquire a stake in the company. Management remains responsible for operations, but gains additional expertise and strategic support.

• Special form: Leveraged buyout (LBO) In an LBO, the purchase price is largely financed by debt, which is later repaid from the company’s profits. This option can enable a quick takeover, but carries a higher risk due to the increased debt.

What are the advantages of an MBO?

A management buyout offers several advantages:

• Know-how remains within the company: The management knows customer priorities, pricing logic, supply chains, and critical success factors. This knowledge reduces integration costs and start-up errors.
• Stability for the team and the market: Employees experience predictability, key personnel remain—turnover and knowledge loss are avoided. Externally, the MBO signals: “Business is running smoothly – with familiar faces.”
• Smooth transition & short learning curve: Operations can continue without interruption. The new ownership role strengthens decision-making and clarity of priorities.
• Higher motivation: With capital and responsibility comes a greater entrepreneurial mindset. Decisions become more value-oriented and opportunities are exploited more actively.

What are the risks associated with an MBO?

Despite its many advantages, an MBO is not without risk – a realistic assessment is therefore essential.

• Financial overload: An MBO often involves considerable financial burdens for the management team. Although financing can be facilitated by external investors, there is often still a significant amount of equity capital that the management must contribute.
• Conflicts of interest in negotiations: An MBO is a particularly sensitive form of succession planning, as buyers and sellers must cooperate closely with each other. This often leads to conflicts of interest.
• High debt in LBOs: A large proportion of MBO transactions are financed with debt, particularly in the form of leveraged buyouts (LBOs). In this case, the acquired company itself serves as collateral for the financing. This financing model carries specific risks, such as high dependence on debt, difficulties in making investments, and economic fluctuations.
• Lack of entrepreneurial experience: The management team may have extensive operational knowledge of day-to-day business, but is not always prepared for the challenges and risks of ownership.

What requirements must be met for an MBO?

An MBO only works if certain conditions are met:

• An efficient, motivated management team: The existing management must be professionally competent, well organized, and committed. They should be very familiar with the day-to-day operations of the company and be prepared to take on responsibility for the entire company. Without a strong team at the helm, the success of an MBO will be difficult.
• Consent of the previous owner: An MBO is only possible if the current owner is willing to sell the company to the management. This consent forms the basis for all further steps. Personal trust between the parties often plays a decisive role here.
• Financing capacity: Management must be able to finance the takeover. This can be done through personal savings, bank loans, or external investors. It is important to have a solid financing structure that secures both the purchase price and the future management of the company.
• Sustainable, future-proof business model: An MBO only makes sense if the company has a viable business model. This means stable customer relationships, a competitive offering, and good prospects for the coming years. Only then can the new management work and invest successfully after the takeover.

Examples and practical applications

An MBO is suitable for many industries—especially those where customer relationships and team stability shape the value of the company.

• Family businesses without successors: If the next generation is pursuing other paths, the core management team can take over. The culture is preserved, and the region and workforce benefit.
• Carve-outs from corporations: A profitable business unit is spun off and taken over by the local management—often with a co-investor. The team knows the market and assets; as an independent entity, it can make decisions faster and grow in a more targeted manner.
• Service and B2B niches: In consulting, service, or project-heavy models, trust is the currency. An MBO protects this asset and prevents customer teams from leaving in uncertainty when there is an external buyer.

Conclusion: Is a management buyout the right solution?

An MBO does not have to be a stopgap solution, but can be the best option: it combines stability, speed, and proximity to the business. If there is a strong management team in place, the owner has realistic goals, and the financing is structured in a sustainable manner, an MBO can preserve and increase the value of the owner’s life’s work. Our recommendation: Bring experienced succession and M&A advisors such as Conpair on board at an early stage. We provide structure to the process, conduct discreet negotiations, and advise you on financing that will allow your company to remain operational even after the purchase. We clarify tax and legal issues with specialized partners from our network. Let’s talk about your options: Is an MBO the right path for your company? We analyze your starting position, structure the process, and accompany you through to closing—discreetly, efficiently, and with a clear focus on value preservation and future viability. Contact us for an initial consultation!