In the business world, there are always deals going on — companies being bought and sold, divisions being spun off, acquired or merged. All of these different types of transactions fall under the umbrella of mergers and acquisition (M&As), which is a term that includes all these different types of deals. Like other business lingo, there are multiple varieties of M&As, each with its own set of established methods. One of the common types of M&As is a management buyout.

What Is a Management Buyout?

Management buyouts (MBOs) are a type of business transaction, in which the management team of a company buys out the owners of the company. This type of deal always includes all the company’s assets and operations. An MBO is often achieved through debt financing, which is when a firm raises capital by selling debt instruments to individuals or institutional investors. Perhaps one of the most notable MBOs was when Michael Dell, founder of Dell, bought out his company for $25 billion in order to take it private, allowing him to have greater control of the business.

How and Why MBOs Are Used

In many cases, MBOs are used as exit strategies for companies wishing to shed divisions that are not part of their core business, or by private companies whose owners wish to retire or move on. In most instances, this is an appealing prospect, as it allows the management team to cease being “employees” and become “principals.”

How MBOs Differ from Other Types of Buyouts

There are many different types of buyout scenarios in the business world. Some are similar to MBOs but have differences that separate them.


An MBO is different from a management buy-in (MBI), because, in an MBI, an external management team is brought in to replace the existing management team. In an MBO, it’s the existing management team that does the buying, which makes them the new owners of the company. 


A leveraged buyout (LBO) is when one company acquires another, using borrowed assets (typically bonds and/or loans) that are required for the purchase. The assets of the company are commonly used as collateral. As in the MBI example, it’s outsiders that provide the capital for the purchase, as opposed to the current management team. In addition, LBOs have gotten a bad rap over the years, being perceived as a ruthless and predatory business strategy, as the target company’s assets can be used to leverage the deal.

Top Considerations and Benefits of Management Buyouts

There are many pros and considerations for performing an MBO. These include the following:

  • Easy transition: This is a far more seamless process than other types of buyouts, as management is already invested in the business. 
  • Speed of process: Typically, the timeline of an MBO is far faster than other types of M&A deals.
  • Job security: Because the team members buying the company are already employees, and familiar with the others in the company, there is far greater employee retention.
  • Sweat equity: Because the management team has put time and dedication into the company and knows the business, they will fight harder to protect the legacy and reputation of the company.
  • Business control and financial reward: Because of the buyer’s history with the company, there is a greater chance for the leaders to determine the future of the company and allow for improved profitability, with chances of going public sometime in the future.

Preparing for an MBO

Like any other business deal, preparing for an MBO takes work, including due diligence. For the buyers (the management team that plans on acquiring the business), there are several key steps that need to be taken. These include the following.

  • Pricing: Perhaps the most important step in the preparation phase. An impartial third party is required to deliver fair market value for the deal. This includes a deep dive into all of the company’s assets and liabilities, including intellectual property and any pending legal issues and existing contracts, among other concerns.
  • Deal structure: This step involves key members of the management team, with the goals of meeting the objectives of both parties involved and maintaining a clear understanding of the financial and legal requirements.
  • Preparing the paperwork: All of the key aspects of the transaction need to be recorded and spelled out clearly.
  • Investigate funding options and raise capital: The management team would determine how much of their own resources would be required to invest, and whether additional funding would come from other sources, such as a traditional bank, private equity company or angel investors.
  • Final terms and closing the deal: At this stage in the process, confirming all parties involved have the definitive agreements and final numbers is key. Once this is agreed upon, the deal can be finalized.

Where a CapLinked VDR Comes into Play

One of the indispensable tools for any type of M&A activity, including MBOs, is a virtual data room (VDR). A VDR is a secure, online location that is vital in every stage of a management buyout. It ensures that all the highly confidential documents remain secure, helping verify the integrity of the deal. A quality VDR’s features include document and version management, top-level encryption, backup, document and version management, high-level administrative controls, multiple layers of security and 24/7 customer support.

CapLinked is a leader in the VDR space, providing cutting-edge features that are required for any type of M&A dealings. It includes all the necessary security requirements, and because its user-friendly interface is compatible with virtually every OS, users can upload, edit and download documents from every type of computer, smartphone or tablet. To see for yourself how CapLinked can help with your management buyout with virtual data rooms, sign up for a free trial.

Chris Capelle is a technology expert, writer and instructor. For over 25 years, he has worked in the publishing, advertising and consumer products industries.


Indeed – What Is a Management Buyout and the Benefits of It?

Difference Between – Difference Between LBO and MBO

Wall Street Mojo – Management Buyout (MBO)