Management Buyout (MBO): how to buy the company you work for
A guide for managers who want to buy the company they work for: team, negotiation, analysis, and transition to ownership.
Contents
A Management Buyout (MBO) is an acquisition led by the management team of the company itself. The managers become part owners of the business they already know, potentially combining their own capital, investors, and negotiated financing for the operation.
For the owner, it can be a solution for continuity. For the managers, it is a change of role: in addition to directing the activity, they take on risk as buyers and partners. This guide focuses on this transition from manager to owner, from the first conversation to the organisation of management after the purchase.
What is an MBO and when does it make sense?
The element that distinguishes an MBO is the origin of the buyers: the initiative comes from those who already manage the company. The definition also appears in the report on business financing from the British Business Bank, which describes the acquisition by the existing management. This reference explains the concept; the rules and documents of a Portuguese operation require local analysis.
One possibility is for the founder to want to retire and the team to be interested in continuing. Another is for a corporate group to want to sell a unit and its leaders wanting to acquire it. In both cases, there must be agreement on the business, the price, and the ability to finance the purchase.
The fact of knowing the operation is an advantage in the analysis. It does not mean that the managers know all the commitments of the company, that the price is appropriate, or that the seller is obliged to negotiate with them.
MBO, MBI, and LBO: they do not answer the same question
Term | Question it answers | Central feature |
|---|---|---|
MBO | Who leads the purchase? | Managers who already work in the company. |
MBI | Where does the new management come from? | External managers come in through the acquisition. |
LBO | How is the acquisition financed? | There is significant reliance on debt. |
An MBO can include debt, but that does not make the two expressions equivalent. If the buyer comes from outside to take the lead, read the guide on Management Buy-In (MBI).
What should managers clarify among themselves?
Before discussing a price with the owner, build a common position. A team that works well as employees may have very different expectations when they start investing their own money.
Who actually wants to buy and who prefers to continue only as a manager?
How much can each person invest and what exposure do they accept?
Who will lead the company and who takes on each area?
How will decisions be made when buyers disagree?
What remuneration is necessary and what cost does it represent for the operation?
What happens if someone leaves, cannot continue, or wants to sell their share?
An initial principles document does not replace final agreements, but it avoids negotiating an acquisition based on a unit that the team does not yet have.
How to approach the owner?
The conversation should start with the intention of continuity and the seller's interest. Ask if they are considering selling, in what timeframe, and what role they would like to maintain during the transition. Do not start with a price promise that you cannot yet support.
One possible formulation is: "We are interested in exploring an acquisition by the management team. If this possibility makes sense to you, we propose to define what information we can analyse and a confidential process to evaluate the operation."
There is an ongoing professional relationship. The team should clarify how the company's information will be used and how to separate decisions from normal activity from decisions made as a potential buyer. Situations of conflict of interest deserve proper advice.
How to evaluate the company without confusing familiarity with security?
Knowing the customers does not equate to knowing the economic value of the business. Start by understanding what is included in the sale, what debts and assets exist, and what costs change when the founder leaves.
If the owner accumulates commercial, technical, and administrative functions, their replacement may require more than just hiring. If they use properties or equipment that do not belong to the company, the continuity of that access also needs to be clarified.
Organise the evaluation around three questions:
What is being bought? Shares, business unit, or assets, and with what perimeter?
What results remain? After adjusting extraordinary costs, remuneration, and necessary expenses.
What cash is available? After taxes, investment, working capital needs, and debt.
A due diligence in the purchase of a company is still necessary. The tax, labour, contractual, and financial areas may contain elements that the team has never had access to.
How is a management buyout financed?
The structure can combine money from the managers, investment entry, credit, and payment of part of the price to the seller at a later time. The combination depends on the business and the acceptance of the parties; no source should be treated as guaranteed.
Before accepting conditions, compare more than just the payment. Who provides guarantees? What decisions now depend on investors? What payments are fixed and which depend on results? What margin is left for unforeseen events?
To explore alternatives and conditions, use the existing guide on how to finance the purchase of a company in Portugal. In an MBO, the goal is to reach a structure that allows for acquisition and continued management, without exhausting cash flow at closing.
For eligible acquisition operations, it is worth analysing the Impulsar Portugal Line. The Strategic Investment component includes MBO, but the framework and approval depend on the specific structure and the analysis of the funder.
A six-step MBO process
Step | Desired outcome |
|---|---|
1. Align the team | Buyers, responsibilities, financial limits, and criteria to proceed. |
2. Confirm seller interest | Willingness to negotiate, scope of the sale, and confidential process. |
3. Analyse feasibility | Financial information, indicative price, and management plan. |
4. Negotiate terms | Terms of purchase, sources of resources, and conditions still to be fulfilled. |
5. Validate and formalise | Due diligence, documentation, and compatible final commitments. |
6. Execute the transition | Communication, handover of responsibilities, and monitoring of the operation. |
The order may overlap and go back. A conclusion of the analysis may change the price, financing, or willingness to buy. For the overall journey, also consult how to buy a company.
Example: three managers buy from the founder
Imagine, in an illustrative scenario, an industrial maintenance company whose founder wants to leave. The financial manager, the operations director, and the sales manager want to study the acquisition.
At first glance, the team already covers the main functions. During the analysis, it is discovered that the founder personally maintains two essential business relationships and that part of the equipment needs replacement. The plan must therefore include contact handover and additional investment.
The decision should not be limited to "can we pay the price?" It should also answer "can we maintain customers, replace equipment, and manage the company with the proposed structure?" If the answer depends on immediate growth that is not yet contracted, the operation needs to be reviewed.
What should be clear among future partners?
Equity participation, salary, and decision-making power are different matters. One manager may invest less money and have a central operational role; another may invest more and have less dedication. These differences should be discussed before the purchase.
Prepare a list of topics for agreements: responsibilities, budget, indebtedness, distribution of results, entry of new partners, exit of a manager, and resolution of deadlocks. Do not use a generic template as a substitute for this conversation.
It is also important to define the seller's role. A transition with combined objectives, timeline, and availability helps avoid the company being caught between two leaderships.
Frequently asked questions about MBO
Do managers have to buy 100% of the company?
Not necessarily. The operation can include investors or the seller remaining with a stake. It is necessary to clarify who controls the company and what rights belong to each party.
Is it possible to do an MBO with little equity?
Other sources can supplement the managers' resources, but this depends on approval and negotiation. Having little equity may limit options and increase exposure to conditions or guarantees required by third parties.
Is MBO suitable for family succession?
It can be an alternative when there is no successor in the family and there is a capable and interested team. Compare it with other options in the guide on business succession.
Does knowing the company allow you to dispense with advisors?
Internal experience helps, but does not replace the analysis of commitments, contracts, accounts, and risks of the operation. The necessary support depends on the size and complexity of the acquisition.
Start with team alignment
Before presenting a proposal, define who wants to buy, who will lead, and what the risk limits are. Only then does it make sense to turn interest into a structured negotiation.
Consult the guide to buy a company
Informative content. The shareholder agreements, financial structure, and applicable obligations should be evaluated for each operation.
