Businesses or parts of businesses are regularly put in the shop window. An excellent opportunity for a management buyout (MBO) or a management buy-in (MBI). Both forms are more than a transfer of ownership, they mark a leadership transition with direct impact on growth and value creation.
Research shows that companies realize solid revenue and profit growth on average in the first three years after a buy-out. This is because an MBO or MBI is almost always accompanied by new energy, renewed focus, sharper management and a clear growth strategy.
MBO & MBI
In an MBO, incumbent management becomes (co-)owner. In an MBI, external managers step in as new shareholders. Especially for family businesses without internal succession, interest in an MBI is growing. With an MBI, it may be advisable to opt for a two-phase approach.
This involves first setting up an exploration period during which the MBI candidate is hired on an interim basis before joining as a shareholder. During this period it can be assessed whether there is a good match with the existing shareholders and the organization.Yet the MBI is often seen as the last option by sellers. A strategic buyer or private equity party (Leveraged Buy Out structure) is considered first, followed by an MBO.
This is because an MBO team already knows the company and the market. An MBI candidate must build trust, gain knowledge and prove that they can actually add value. As a result, an MBI often scores lower initially on factors such as payback time and risk perception.
Management team
Ultimately, the decisive factor in any buyout is the quality of the management team. Not only industry and company knowledge plays a role here, but especially complementary skills, leadership and mutual trust. The success of a buyout is determined by the team, not by one individual. In practice, this aspect is still sometimes underestimated.
In smaller MBOs, the old owner often remains temporarily involved. During negotiations, this issue is usually not a problem for both parties. This is precisely why clear agreements are often not made, which in practice leads to frequent tensions after closing. Clear governance agreements in advance are therefore essential.
Funding
A second strategic question is whether the acquisition will be done alone or as a team. A SWOT analysis helps to determine strengths and weaknesses and whether this will require additions. A buyout is not a solo project, but a joint activity with many financial, operational and legal consequences.
Financing presents the next challenge. As a rule of thumb, candidates are expected to contribute at least one year's salary. Additional funds typically come from banks, informals, the seller (vendor loan) or private equity. The latter option requires sufficient scale (e.g., EBITDA above €1 million) and a clear growth path, often through a buy-and-build strategy.
The more financiers at the table, the more complex the structure. Lenders demand securities, returns and sometimes a say. That can lead to the establishment of a supervisory/advisory board and/or additional governance arrangements. The right balance between entrepreneurship and control is crucial here.
Exit Strategy
Finally, the exit strategy begins at entry. Both private equity and individual managers look in advance at their future sale timing. An MBO or MBI is only truly successful when value creation occurs and dividends or a profitable exit can be realized.
A buy-out is thus not a purely financial exercise, but a strategic repositioning of ownership, leadership and growth ambition. Those who realize this increase the chances of a sustainable and profitable transaction.
