What is a management buyout?

A management buyout is a transaction where a company’s management team purchases the assets and operations of the business they manage. MBOs generally occur to take companies private in an effort to streamline operations and improve profitability. A management team pools resources to acquire all or part of a business they manage.

What is a leveraged management buyout (MBO)?

The financing required for an MBO is often quite substantial and is usually a combination of debt and equity that is derived from the buyers, financiers, and sometimes the seller. Since it uses a significant amount of borrowed capital, it is considered an LBO. As such, it may also be called a leveraged management buyout.

What is a management buy-in (MBI)?

The opposite of an MBO is a management buy-in (MBI). While an MBO involves a company's internal management purchasing the operations, an MBI takes place when an external management team acquires a company and replaces the existing management team. MBIs involve companies that are led by poor management teams or are undervalued.

Do private equity funds participate in management buyouts?

While private equity funds may participate in MBOs, their preference may be for MBIs, where the companies are run by managers they know rather than the incumbent management team. One prime example of a management buyout involves the computer and technology company, Dell.