What is a management buyout?

If a management team buys a controlling stake, or the whole company, it already works for, it’s known as a management buyout or MBO. To help the management team finance the deal, they may have to turn to a venture capital firm for funding.

Where have you heard about management buyouts?

There have been some high-profile examples of MBOs over the years. In 2004, clothing retailer New Look was the subject of a management buyout by the company's founder Tom Singh. And in 2007, Virgin Megastores became Zavvi as part of a management buyout.

What you need to know about management buyouts.

There are three main reasons why an MBO occurs:

• A large company wants to sell a subsidiary because it doesn’t fit its corporate strategy or isn’t profitable enough
• A private company wants to sell, perhaps because family owners no longer want to run the business
• A company may be saved from administration if part of the business is separated

The managers don’t usually have enough money to buy the company outright, and banks are often unwilling to lend because of the risks involved, so many MBOs are financed by private equity firms, who will invest money in return for shares in the company.

Find out more about management buyouts.

Read our definition of management buy-in to learn how it differs from a management buyout.