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Management buyout mbo

Management Buyout (MBO)

A management buyout (MBO) is a transaction in which a company’s existing management team purchases the company’s assets and operations, often with the help of external financing. MBOs are common in situations where the management team believes it can run the business more effectively as owners. They can also occur when a parent company decides to sell a subsidiary or when a public company is taken private by its management team.

Example

The management team of a division within a large corporation raises funds to buy the division from the parent company, turning it into an independent, privately held business.

Key points

• A transaction in which a company’s management team buys the company’s assets and operations.

• Common when management believes they can run the business more effectively as owners.

• Often financed with external capital or debt.

Quick Answers to Curious Questions

Why do management teams pursue buyouts?

Management teams pursue buyouts when they believe they can run the company more effectively and profitably as owners.

How are management buyouts typically financed?

MBOs are often financed through a combination of external capital, debt, and management’s own funds.

What types of companies are likely to undergo an MBO?

MBOs often occur in divisions of larger companies being sold or when a public company is taken private.

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