M&A
From Employee to Owner? Management Buyouts (MBOs) made simple
Ever dreamed of becoming your own boss—not by launching a startup, but by buying the business you already know inside and out?
That’s what a Management Buyout (MBO) is all about: when a company’s current management team acquires the business they work for. It's not just a financial move—it's a career transformation.
Here’s how to think about it—strategically, practically, and from a risk-reward perspective. A step-by-step guide.
What Is a Management Buyout (MBO)?
A Management Buyout is a transaction where the existing managers of a company purchase either part of or the entire business from the current owners. It often happens when:
The owner wants to retire or exit,
A corporate parent wants to divest a division, or
A private equity firm wants a stable team to take the business forward.
Why would you as employees consider an MBO
For you as a manager there are several reasons that would lead to you wanting to buy out the business where you work. First and foremost you already know the business from the inside so the risks that an external buyer is facing are much less of an issue for you. Furthermore, as regards the transition and potential post-M&A integration issues you also have the advantage of already being part of running the operations, and you will have no steep learning curve and potentially unexpected hick-ups along the way.
Knowing the business you should, if contemplating an MBO, identify an untapped potential with growth opportunities, operational efficiencies and other ways for you – as part of the management team taking over the business, could realize together.
As part of the “why” you would want to buy the business is also that it’s a way to secure your future and hopefully increase your wealth. You will not be working for a pay-check only, seeing the owners reaping the results, and you would not be vulnerable to ownership changes (which is the case for management that are only on the payroll).
Finally, you believe in the team that would conduct the MBO, and want to align incentives directly with performance as you see this as a way to build value in the company.
How to Finance an MBO
Financing is typically the #1 concern for a management looking to buy out the company because you, as an employee or part of the management team, will typically not sit on the same type of deep pockets as would a typical institutional or strategic buyer. However there are multiple routes for a management team to fund and MBO:
A) Equity from the Management Team
You, the management team put your own money in. Even if it will not suffice to the whole share purchase price, this is often a key part of the financing as it shows commitment, creating skin in the game to work for the long-term success and value growth of the company, and it sends a strong signal to (other) key employees and new top talent that you want to recruit. It functions to convince others to join. Furthermore, own funds will not have an ongoing cost (e.g. interest).
B) Debt finance
Debt finance can be split into two cathegories. Either bank loans or from a lender with a higher risk apitite.
B) 1 - Bank Loan
Bank loans can be attractive and efficient ways to finance at least part of the transaction (see specifically re. leverage buyouts below). Gaining access to attractive (i.e. reasonable interests and other terms and conditions) are typically reserved for more established companies with predictable cash flow as this lowers the risk for the bank and creates a way for you to use the company’s own funds to pay back the loan over time. Too much debt is however risky if the company’s income dips or if other key metrics over which the bank has covenants start faltering as this could lead to a default on the loan or, as a minimum, challenges to pay fees and down payments.
B) 2 - Lenders with a higher risk appetite
If bank financing is available, then there are still options to get access to debt financing from venture lenders, venture funds and other financial institutions or market actors with a higher risk appetite. Such loans will typically have a higher interest rate, and also carry less attractive terms overall. In general such loans will come with stricter covenants, entailing that the lender gets a form of "passive" control rights. This can be operational issues, such as not being allowed to enter into a new markets of change the business plan without their approval, and they can be financial and relate to e.g. earnings, EBITDA or other financial metrics. If the lender breaches the covenants (and do not rectify the breaches on time), that will typically mean you default on the loan, and often you will have pledged the shares in the company - meaning that a default will give the lender a right to take over the company. Also, many lenders in this category will require an "equity kicker", meaning that they also get a stake (typically through warrants) so they get part of the upside from a successful future exit. You will hence share more of the value growth and more of the control in this case.
C) Seller Financing
Another way to finance your management buyout will be that the current owner defers part of the payment (e.g. installments over years). This will create a way for you to build value in the company and use (preferably) the company’s own cash flow to pay the seller, or refinance it in some other way further along your ownership path. It is a great finance structure for trust-based deals that may be possible for instance when the current owner wants to retire and wants to preserve the company and his/her legacy “as is” to the greatest extent possible. (It can also be a great offer for a seller that has little time or ability to find an external buyer willing to pay a desired price – but note that the set-up entails certain additional risks for the seller.)
D) Private Equity Backing
The bigger MBOs are often backed by private equity players, as they seek to grow companies with a strong, competent management teams who have proper skin in the game. The upsides for you will include that you get capital you seek and (often) strong strategic support. The down side will be that they’ll want a clear exit plan and typically also influence (or even control) over governance – so your role as actual owners of the business will be restricted, and much of the ultimate control will be reserved for the private equity player.
Risks You Should Consider
Buying the business sounds empowering, and it is. But it’s also a leap that entails risks and exposures. Hence you should carefully consider:
The financial pressure – You may put personal capital at risk, and takt on new debt that could not only be carried by the company but by you personally.
The MBO team – You have to define who should be part of the management buy out, and whether all participants should own equal stakes or if some should get more and some less. Also the governance of the company needs to be pinned down in a shareholders’ agreement that fits your dynamics and protects the operation of the company from potential conflicts, from someone wanting out or from a scenario where for example someone desires to sell while others want to keep building the company for longer.
Cultural shift – you will be the owner with all of the power and autonomy that entails. However, you should also be mindful that your relationships with colleagues may change and that this can create challenges.
The deal complexity – the process of an MBO is often surprisingly long and complex compared to what is expected by a management that has not done an M&A deal before. The negotiations to reach a fair price, agree on how the purchase price is to be paid out, deal terms, any earn-outs, liabilities, etc will require time and energy.
Any M&A transaction should include a due diligence from the buyer. You need to objectively assess the business you already think you know and ensure that you are not missing any important aspects, risks or challenges. This can come with extra costs for consultants and other specialists/experts.
The management team need to clarify what, if any, exit strategy they will have once the company is bought. What’s your long-term plan? Sale? IPO? Family succession?
Practical Tips for Success
Here are some to the point tips to keep in mind when exploring and conducting an MBO process
A) Start early
the conversation with the owner discreetly and respectfully. Don’t ambush. Instead, express interest and explore intentions. As regards the share purchase agreement, the SPA - read this guide.
B) Assemble a solid legal and financial team
The complexity and risks involved for you when you do an MBO will warrant having a business lawyer with M&A experience as well as taking tax advice, and depending on the financial structure also the support of a financial advisor.
C) Structure incentives wisely
Consider how the management team’s post-transaction ownership should look – should all hold equal parts or should some (or for example the CEO) own more? Also consider incentive programs and future reward systems for key employees that will not be part of the management team that are not part of the MBO itself, in order to ensure talent retention.
D) Think about integration
If you’re spinning out a division from a larger group, plan operational autonomy. If you are buying from an owner that has been an integral part of the business, do assess what will happen on Day 1 – the day after closing when the buyer has left the building. What corporate knowledge will you lose? What competence needs to be replaced and what external relationships need to be catered to that where previously in the hands of the owner?
E) Get internal buy-in
Even if you’re leading the charge, you’ll still need loyalty and energy from your team so make sure you – to the extent possible from a deal perspective – communicate transparently and in a way that creates buy-in and a feeling of job safety.
Final thoughts
Owning the company you’ve helped build is a powerful feeling—and when done right, it can be both personally fulfilling and financially transformative.
A Management Buyout is more than just a deal. It’s a shift in identity—from employee to entrepreneur. But it’s also a bet: on yourself, your team, and your vision.
The upside - why it’s worth it;
You control your destiny.
You reap the rewards of growth.
You build equity, not just salary.
You go from being an operator to being an owner.
If you’re seriously considering an MBO, don’t go it alone. Get advice early, test your numbers, and prepare for a bumpy but potentially life-changing and very exciting road.
Are you considering an MBO or looking to step down as owner? Feel free to give me a call at +46(0)763750336 or email me at kat@stgcommerciallaw.com for further discussions.
London, 2025-07-02
Author: Kat Strandberg
What Is a Management Buyout (MBO)?
A Management Buyout is a transaction where the existing managers of a company purchase either part of or the entire business from the current owners. It often happens when:
The owner wants to retire or exit,
A corporate parent wants to divest a division, or
A private equity firm wants a stable team to take the business forward.
Why would you as employees consider an MBO
For you as a manager there are several reasons that would lead to you wanting to buy out the business where you work. First and foremost you already know the business from the inside so the risks that an external buyer is facing are much less of an issue for you. Furthermore, as regards the transition and potential post-M&A integration issues you also have the advantage of already being part of running the operations, and you will have no steep learning curve and potentially unexpected hick-ups along the way.
Knowing the business you should, if contemplating an MBO, identify an untapped potential with growth opportunities, operational efficiencies and other ways for you – as part of the management team taking over the business, could realize together.
As part of the “why” you would want to buy the business is also that it’s a way to secure your future and hopefully increase your wealth. You will not be working for a pay-check only, seeing the owners reaping the results, and you would not be vulnerable to ownership changes (which is the case for management that are only on the payroll).
Finally, you believe in the team that would conduct the MBO, and want to align incentives directly with performance as you see this as a way to build value in the company.
How to Finance an MBO
Financing is typically the #1 concern for a management looking to buy out the company because you, as an employee or part of the management team, will typically not sit on the same type of deep pockets as would a typical institutional or strategic buyer. However there are multiple routes for a management team to fund and MBO:
A) Equity from the Management Team
You, the management team put your own money in. Even if it will not suffice to the whole share purchase price, this is often a key part of the financing as it shows commitment, creating skin in the game to work for the long-term success and value growth of the company, and it sends a strong signal to (other) key employees and new top talent that you want to recruit. It functions to convince others to join. Furthermore, own funds will not have an ongoing cost (e.g. interest).
B) Debt finance
Debt finance can be split into two cathegories. Either bank loans or from a lender with a higher risk apitite.
B) 1 - Bank Loan
Bank loans can be attractive and efficient ways to finance at least part of the transaction (see specifically re. leverage buyouts below). Gaining access to attractive (i.e. reasonable interests and other terms and conditions) are typically reserved for more established companies with predictable cash flow as this lowers the risk for the bank and creates a way for you to use the company’s own funds to pay back the loan over time. Too much debt is however risky if the company’s income dips or if other key metrics over which the bank has covenants start faltering as this could lead to a default on the loan or, as a minimum, challenges to pay fees and down payments.
B) 2 - Lenders with a higher risk appetite
If bank financing is available, then there are still options to get access to debt financing from venture lenders, venture funds and other financial institutions or market actors with a higher risk appetite. Such loans will typically have a higher interest rate, and also carry less attractive terms overall. In general such loans will come with stricter covenants, entailing that the lender gets a form of "passive" control rights. This can be operational issues, such as not being allowed to enter into a new markets of change the business plan without their approval, and they can be financial and relate to e.g. earnings, EBITDA or other financial metrics. If the lender breaches the covenants (and do not rectify the breaches on time), that will typically mean you default on the loan, and often you will have pledged the shares in the company - meaning that a default will give the lender a right to take over the company. Also, many lenders in this category will require an "equity kicker", meaning that they also get a stake (typically through warrants) so they get part of the upside from a successful future exit. You will hence share more of the value growth and more of the control in this case.
C) Seller Financing
Another way to finance your management buyout will be that the current owner defers part of the payment (e.g. installments over years). This will create a way for you to build value in the company and use (preferably) the company’s own cash flow to pay the seller, or refinance it in some other way further along your ownership path. It is a great finance structure for trust-based deals that may be possible for instance when the current owner wants to retire and wants to preserve the company and his/her legacy “as is” to the greatest extent possible. (It can also be a great offer for a seller that has little time or ability to find an external buyer willing to pay a desired price – but note that the set-up entails certain additional risks for the seller.)
D) Private Equity Backing
The bigger MBOs are often backed by private equity players, as they seek to grow companies with a strong, competent management teams who have proper skin in the game. The upsides for you will include that you get capital you seek and (often) strong strategic support. The down side will be that they’ll want a clear exit plan and typically also influence (or even control) over governance – so your role as actual owners of the business will be restricted, and much of the ultimate control will be reserved for the private equity player.
Risks You Should Consider
Buying the business sounds empowering, and it is. But it’s also a leap that entails risks and exposures. Hence you should carefully consider:
The financial pressure – You may put personal capital at risk, and takt on new debt that could not only be carried by the company but by you personally.
The MBO team – You have to define who should be part of the management buy out, and whether all participants should own equal stakes or if some should get more and some less. Also the governance of the company needs to be pinned down in a shareholders’ agreement that fits your dynamics and protects the operation of the company from potential conflicts, from someone wanting out or from a scenario where for example someone desires to sell while others want to keep building the company for longer.
Cultural shift – you will be the owner with all of the power and autonomy that entails. However, you should also be mindful that your relationships with colleagues may change and that this can create challenges.
The deal complexity – the process of an MBO is often surprisingly long and complex compared to what is expected by a management that has not done an M&A deal before. The negotiations to reach a fair price, agree on how the purchase price is to be paid out, deal terms, any earn-outs, liabilities, etc will require time and energy.
Any M&A transaction should include a due diligence from the buyer. You need to objectively assess the business you already think you know and ensure that you are not missing any important aspects, risks or challenges. This can come with extra costs for consultants and other specialists/experts.
The management team need to clarify what, if any, exit strategy they will have once the company is bought. What’s your long-term plan? Sale? IPO? Family succession?
Practical Tips for Success
Here are some to the point tips to keep in mind when exploring and conducting an MBO process
A) Start early
the conversation with the owner discreetly and respectfully. Don’t ambush. Instead, express interest and explore intentions. As regards the share purchase agreement, the SPA - read this guide.
B) Assemble a solid legal and financial team
The complexity and risks involved for you when you do an MBO will warrant having a business lawyer with M&A experience as well as taking tax advice, and depending on the financial structure also the support of a financial advisor.
C) Structure incentives wisely
Consider how the management team’s post-transaction ownership should look – should all hold equal parts or should some (or for example the CEO) own more? Also consider incentive programs and future reward systems for key employees that will not be part of the management team that are not part of the MBO itself, in order to ensure talent retention.
D) Think about integration
If you’re spinning out a division from a larger group, plan operational autonomy. If you are buying from an owner that has been an integral part of the business, do assess what will happen on Day 1 – the day after closing when the buyer has left the building. What corporate knowledge will you lose? What competence needs to be replaced and what external relationships need to be catered to that where previously in the hands of the owner?
E) Get internal buy-in
Even if you’re leading the charge, you’ll still need loyalty and energy from your team so make sure you – to the extent possible from a deal perspective – communicate transparently and in a way that creates buy-in and a feeling of job safety.
Final thoughts
Owning the company you’ve helped build is a powerful feeling—and when done right, it can be both personally fulfilling and financially transformative.
A Management Buyout is more than just a deal. It’s a shift in identity—from employee to entrepreneur. But it’s also a bet: on yourself, your team, and your vision.
The upside - why it’s worth it;
You control your destiny.
You reap the rewards of growth.
You build equity, not just salary.
You go from being an operator to being an owner.
If you’re seriously considering an MBO, don’t go it alone. Get advice early, test your numbers, and prepare for a bumpy but potentially life-changing and very exciting road.
Are you considering an MBO or looking to step down as owner? Feel free to give me a call at +46(0)763750336 or email me at kat@stgcommerciallaw.com for further discussions.
London, 2025-07-02
Author: Kat Strandberg