A management buy-out (MBO) is a type of business transaction in which the buying party is usually the company's management team. In an MBO, the management team buys out the current shareholders with the help of private equity investors or venture capitalists. The goal of an MBO is to take a public company private or to make a privately held company more attractive to potential buyers.
There are several reasons why management teams may want to pursue an MBO. One reason is that they may believe that they can run the company more effectively than the current shareholders or management. Another reason is that they may be looking for a way to cash out their shares before the company goes public or is sold to another party. Management teams may also use an MBO as a way to keep their jobs if there is talk of layoffs or downsizing within the company.
The first step in pursuing an MBO is usually for the management team to approach potential investors and secure funding. Once funding has been secured, the next step is typically negotiating with the current shareholders. The management team will need to come up with an offer that entices them to sell their shares. In some cases, this may mean offering them a premium price for their shares or agreeing to certain conditions such as keeping their jobs post-transaction.
If all goes well, once negotiations are complete and shareholders have agreed to sell, then it’s time for due diligence and closing . During due diligence, both sides will investigate each other’s business practices and finances in order to ensure that everything checks out before finalizing the deal . Once everything has been approved, it’s time for paperwork and signatures! After all documents have been signed, the transaction is complete and ownership officially transfers from shareholders to management.