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The MBO Method

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Management Buy-out

Summary of the MBO Method. Abstract

Purchase of a business by its own management

Essentially, a management buy-out (MBO) is the purchase of a business by its existing management, usually in cooperation with outside financiers. Buy-outs vary in size, scope and complexity but the key feature is that the managers acquire an equity interest in their business, sometimes a controlling stake, for a relatively modest personal investment. The existing owners normally sell most or usually all of their investment to the managers and their co-investors. Often the group of managers involved establish a new holding company, which then effectively purchases the shares of the target company.

Typical reasons for the purchase of a business by its existing management include:

Attractiveness of the Management buy-out approach to a seller?

Feasibility of a Management Buy-out? Typical criteria are:

  1. Sound and well-balanced management team,

  2. Business must be commercially viable as a stand alone entity,

  3. Willing vendor,

  4. Realistic price (Valuation... Discounted Cash Flows, Net Asset valuation, Price Earnings ratios),

  5. Buy-out must be capable of supporting an appropriate funding structure.

The typical steps in an MBO process

👀TIP: On this website you can find much more about Management Buy-outs!

Compare with Management buy-out:  Leveraged Buy-out  |  Acquisition Integration Approaches  |  Core Competence  |  Outsourcing

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