3 Mins
Last Updated on 25 June 2026
A management buy-out (MBO) can provide an ideal exit for business owners who want to reward their management team for their contribution to building the business. An MBO often addresses concerns over losing business identity or independence if sold to trade or private equity and can secure ongoing employment for staff. Our Transactions Team can guide the MBO team members through the process.
Typical Management Buy-Out (MBO) Structure Explained
A management buyout (MBO) typically involves creating a new company (“Newco”) to acquire the shares of the existing business (“Target”), with funding coming from a combination of management investment, external finance, and vendor support.
How an MBO Structure Works:
- Newco is formed
A new holding company (“Newco”) is established specifically to acquire the target business. - Management team invests
The MBO team subscribes for shares in Newco, giving them an ownership stake in the business. - Funding is secured
External funding (such as bank debt, private equity, or other finance) is introduced into Newco to support the acquisition. - Vendors may roll over equity
Existing shareholders (vendors) may retain a stake by exchanging some of their shares in the target for shares in Newco. - Deferred consideration (vendor loan)
Vendors may provide a loan to Newco, which is repaid over time from future business cashflows. - Surplus cash contribution
Cash within the target business can sometimes be used to help fund the transaction. - Acquisition completed
Newco acquires the target company, and ownership transfers to the management team (and any co-investors).
Key Considerations in an MBO
- The structure is flexible and can be tailored to funding availability
- Tax planning is critical for both vendors and the management team
- Cashflow must support any debt or deferred payments
- Legal protections are often put in place for vendor loans
Why Structure Matters in an MBO
A well-structured MBO balances risk, funding, and future growth, ensuring:
- Vendors can exit (fully or partially) at the right value
- Management is incentivised to grow the business
- Funding is sustainable over the long term
How we assist you with your MBO
Approach
An MBO can either be led by the MBO team where they are given the remit and resources to seek finance to make an offer to the vendors or it can be vendor led where the business owner packages up a deal for the MBO Team to implement. We can advise on the best approach.
Feasibility
It is critical at an early stage to establish the owner’s price expectation to avoid any conflict further down the process.
Price and structure
The MBO Team should seek an independent valuation of the company and assess whether a suitable structure can be put in place which both meets the vendor’s expectation but importantly, is affordable for the business going forward.
Funding
The purchase price for an MBO often consists of existing cash, deferred consideration, management equity and sometimes retained shares by the vendor. We can help structure a transaction and
Vendor negotiations
This is a very sensitive area as you and the vendor are on the same side during your day job but on the other side of a deal negotiation. Our team understands the sensitive nature and can lead these discussions to avoid conflict.
Transaction management
An MBO can be complex process and we can manage the deal through diligence and the completion stage to ensure an efficient process.
