Management buy-out or buy-in
Managers buy the business from its owners, usually funded by private equity and borrowing. It lets owners sell and managers take control, but it loads the business with debt and gives investors a large stake.
- Shares
- Debenture (charge over company assets)
- Personal guarantee likely
How it works
A buy-out is the purchase of a majority stake in a company, usually over 50%, which gives control. In a management buy-out (MBO) the buyers are the company's existing managers. In a management buy-in (MBI) they are outside managers. When much of the price is borrowed, it is called a leveraged buy-out.
Buy-outs of established companies are commonly backed by:
- Private equity investors, who take a large share and usually aim to sell it within four to seven years, for example through the stock market or to another buyer
- Lenders, who help the investors pay for their stake and refinance the company's existing debt
Advisers on both sides carry out due diligence, value the business and draw up the legal documents.
Upsides and downsides
Upsides
- Owners can sell to people who know the business
- Managers gain ownership and control
- Investors bring money and experience
Downsides
- Debt taken on to fund the purchase must be repaid from the business's cash
- Private equity investors take a large stake and set demanding targets
- Costly and slow, with heavy due diligence
Risks
- Too much debt if trading falls after the deal
- Managers losing their personal investment, and sometimes their jobs
- Conflict between the managers' roles as buyers and as employees during the deal
What it costs
- How it is priced
- Shares to private equity investors, plus interest on acquisition debt and adviser fees
- Costs that are easy to miss
- Corporate finance, legal and due diligence fees on both sides
- Interest and fees on the acquisition debt
- Investor rights, targets and reporting after the deal
The price of the business, usually funded by a mix of private equity and debt.
Does it fit?
Could fit when
- Owners want to sell, and managers want to buy the business
- The business is established and profitable, with steady cash flow
Unlikely to fit when
- Nobody is selling the business
- The business makes a loss, so it could not carry acquisition debt
Who can use it
- Business types: Private limited company, LLP, Public limited company
- Usually needs a profitable business
- An established, usually profitable business with steady cash flow to service the debt
- A management team able to run the business and persuade investors
- Owners willing to sell
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all private equity investment
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- A credible management team
- Business plan and forecasts
- Audited accounts
Regulation and protections
There is no compensation scheme for the company or its owners. Your protection comes from the deal documents, so take legal and financial advice. You can check a fund manager on the FCA Register.
Types of provider: Private equity firms; Banks and private credit funds; Corporate finance advisers.
Also consider
Sources
- British Business Bank: Private equity · checked 7 October 2026