Management Buy-Out (MBO)

A Management Buy-Out (MBO) is an acquisition in which the incumbent management team purchases the company they run, typically from the current shareholders — founder, family or exiting fund — using acquisition leverage. It is the most common form of business succession in Europe for SMEs and mid-market companies. Management's informational advantage over the business (they know it better than any external buyer) is offset by the complexity of simultaneously being buyer and seller. Target valuation fairness is a central issue, as both sides of the transaction involve the same individuals.

‍

Example: the CEO of a Swiss technical services SME (CHF 20.0 million revenue, CHF 2.8 million EBITDA) structures an MBO at CHF 19.0 million (6.8x EBITDA). He personally invests CHF 900,000 (5% of equity), a private equity fund contributes CHF 4.1 million (22%) and CHF 14.0 million of senior debt finances the balance. The management package enables him to capture 15–20% of value creation over a 5-year hold period.

‍

Hectelion structures MBOs end-to-end: target valuation, financing structure, shareholders' agreement and investor negotiation support.