A Management Buyout (MBO) occurs when a company’s existing management team purchases the assets and operations of the business they manage. This type of transaction allows the management team to take control of the company, often with the help of external financing.

Characteristics:
– Involvement of Existing Management: The current management team is typically involved in the buyout, which can lead to a smoother transition.
– Financing Options: MBOs often involve various financing methods, including bank loans, private equity, or seller financing.
– Retention of Knowledge: The existing management team retains valuable knowledge about the company’s operations, culture, and market position.
– Potential for Growth: MBOs can provide an opportunity for management to implement their vision and strategies for growth without external interference.

Examples:
– A group of executives at a mid-sized manufacturing company decides to purchase the business from its owner, using a combination of personal savings and bank loans to finance the deal.
– A technology firm experiences a management buyout when its founders retire, allowing the leadership team to acquire the company and pursue new product development initiatives.