Leveraged Management Buy-Out (LMBO)

A Leveraged Management Buy-Out (LMBO) is an acquisition in which the incumbent management team purchases the company it runs, financing the transaction through an acquisition holding company using leverage. The LMBO is one of the most common routes for business succession, particularly for family-owned SMEs where the founder wishes to sell to a trusted management team rather than to a competitor or a purely financial buyer.

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LMBO, MBO, MBI and LBO are often confused. The LBO is the generic technique: any acquisition financed predominantly with debt, whoever the buyer is. The MBO designates a purchase by existing management; the term LMBO, usual in French-speaking practice, simply makes the leverage explicit, so LMBO and MBO describe the same transaction. In an MBI (management buy-in), the buying managers come from outside the company, which raises execution risk since they must learn the business before creating value. Hybrid forms exist, such as the BIMBO, combining internal and external managers, and the OBO (owner buy-out), in which the owner sells to a holding company he partly controls in order to realise value while remaining a shareholder.

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Structuring: a NewCo holding raises equity and debt to acquire 100% of the target. Management typically contributes 10–30% of the equity, alongside a private equity co-investor; senior debt and, where needed, mezzanine complete the financing. The acquisition debt is serviced by dividends upstreamed from the target, which in Switzerland must respect capital-maintenance rules that limit debt push-down. The design of the management package, including sweet equity, is the key alignment mechanism between managers and the fund.

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Example: the CEO of a Swiss services SME (revenue CHF 15.0 million, EBITDA CHF 2.5 million, valuation CHF 18.0 million) structures an LMBO with a partner fund. Management invests CHF 800,000, the fund contributes CHF 4.2 million and CHF 13.0 million of senior debt is raised from a Swiss bank. Management holds 16% of the equity post-acquisition (0.8 / 5.0 of total equity), topped up by a sweet equity incentive package.

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Hectelion structures and advises on LMBOs end-to-end: valuation, financing, shareholders' agreement and management package design.