management buy-out

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Related to management buy-out: Leveraged Management Buyout, Management Buy In

Management Buyout

The act of the senior management of a publicly-traded company buying all of the company's shares outstanding. A management buyout gives the management complete control of the company and allows it to operate without recourse to shareholders. A management buyout is usually heavily leveraged and is a form of going private.

management buy-out (MBO)

the TAKEOVER of a firm, or of a division of a firm, by its existing management team from, in the former case, the shareholders of the firm, or in the latter case, the firm's main board of directors subject to shareholder approval. The purchase of a division of a diversified firm (see DIVERSIFICATION) by its management is a form of DIVESTMENT which can be beneficial to both parties. The disposer's motive is usually to get out of a particular activity which is no longer considered to fit in with its strategic plans for developing the business, and to use the monies released to strengthen its activities or acquire new businesses. From the buyer's point of view, there is the challenge of running one's own business and the potential for making a greater success of an activity which perhaps, because of insufficient support from above in its divisional form, had previously been underperforming. The rekindling of entrepreneurship in the hands of owner-managers is seen to be a key advantage of a management buy-out.

A critical factor in the success of a management buy-out, apart from the obvious need for managerial competence (and a little luck!) is the price paid for the business and the related financial package for acquiring it. The members of the management team will provide a percentage of the purchase price from their own personal funds and own a large amount of the SHARE CAPITAL, with the balance of funds often being provided by LOANS from merchant banks and venture capital specialists. Alternatively, the balance can be obtained by selling shares to the workforce either directly, or indirectly to a trust, as part of an EMPLOYEE SHARE OWNERSHIP PLAN. One advantage of this solution is that it enables the management team to avoid an overdependency on outside interests and unrealistic CAPITAL GEARING levels. See JUNK BOND, MANAGEMENT BUY-IN, DEMERGER, BUSINESS STRATEGY, VENTURE CAPITAL.

management buy-out

the purchase of a FIRM or division of a firm by its present management. In the former case, the shareholders of the firm may be prepared to accept management's financial terms of purchase because they are better than what an outside takeover bidder or merger partner is prepared to offer. In these cases, management buy-outs are often ‘defensively’ motivated, with the existing management fearing loss of office following a hostile takeover. The sale of a subsidiary or division of a firm to its incumbent management is often undertaken as a means of DIVESTMENT by the parent firm from a particular line of business rather than resulting from a takeover or merger approach. Again, in the interests of the shareholders of the firm, the financial details of such deals need to be carefully gone into. Management buy-outs are usually financed by outside interests, including VENTURE CAPITAL specialists and banks.
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References in periodicals archive ?
Burgis & Bullock Corporate Finance advises business owners, directors, and management teams on acquisitions, company sales, management buy-outs and buy-ins, and the raising of finance.
In order to clarify the effect of some of these provisions on management buy-outs, a memorandum of understanding on the tax treatment of managers' equity investments in venture capital and private equity backed companies' was issued by the Inland Revenue at the end of July.
Management buy-outs are beginning to show the green shoots of recovery, according to new research by leading finance firms.
We have found that our focus on management buy-outs and the spread of risk across a large number of deals in different sectors and countries attracted investors.
The Company is owned by management and Cravey, Green & Wahlen (CGW), an Atlanta, Georgia based private equity firm specializing in management buy-outs of middle-market companies, with particular expertise in the packaging industry.
A spokesman said : "There is no truth in the rumour that NCB is for sale, or that there is any discussion about management buy-outs, management buy-ins or joint ventures or anything else.
He said yesterday that proposed management buy-outs for Warehouse, Principles, Racing Green and Hawkshead were on track.
Venture capitalists, some of which are supported by major banks, formerly specialised in providing capital for start-up businesses, but now concentrate on management buy-outs and are always on the look-out for companies as investment opportunities.
From its captive equity fund, Mangrove sponsors owners and operators in management buy-outs, management buy-ins, majority recapitalizations, family succession recaps, and industry consolidations.
The firm looks forward to another active investment year in 2015, investing capital in private companies to support management buy-outs, family transitions, corporate divestitures, growth financings, and recapitalizations across the United States and Canada.
MSIF can fund start-ups, management buy-outs, management buy- ins and acquisitions.
Tait Walker's corporate finance team has seen a rise in deals since the start of 2013, with fundraising and management buy-outs featuring more prominently than at any time since 2008.

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