Management buyout A management buyout ( MBO ) is a form of acquisition where a company 's existing managers acquire a large part or all of the company . Management Buyouts Management buyouts are similar in all major legal aspects to any other acquisition of a company . The particular nature of the MBO lies in the position of the buyers as managers of the company and the practical consequences that follow from that . In particular , the due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them . The seller is also unlikely to give any but the most basic warranties to the management , on the basis that the management know more about the company than the sellers do and therefore the sellers should not have to warrant the state of the company . In many cases the company will already be a private company , but if it is public then the management will take it private . The Purpose of an MBO The purpose of such a buyout from the managers ' point of view may be to save their jobs , either if the business has been scheduled for closure or if an outside purchaser would bring in its own management team . They may also want to maximise the financial benefits they receive from the success they bring to the company by taking the profits for themselves . Private Equity Financing The managememt of a company will not usually have the money available to buy the company outright themselves . While they could seek to borrow from a bank if the bank will accept the risk , they will commonly look to private equity investors to back their buyout . They will invest money in return for a proportion of the shares in the company , and sometimes also grant a loan to the management . Private equity backers are likely to have somwhat different goals to the management . They generally aim to maximise their return and make an exit after 3-5 years while minimising risk to themselves , whereas the management will be taking a long-term view . While certain aims do coincide - in particular the primary aim of profitability - certain tensions can arise . The backers will invariably impose the same warranties on the management in relation to the company that the sellers will have refused to give the management . This `` warranty gap `` means that the management will bear all the risk of any defects in the company that affects its value . As a condition of their investment , the backers will also impose numerous terms on the management concerning the way that the company is run . The purpose is to ensure that the management run the company in a way that will maximise the returns during the term of the backers ' investment , whereas the management might have hoped to build the company for long-term gains . Though the two aims are not always incompatible , the management may feel restricted . Examples of MBOs A classic example of an MBO involved Springfield Remanufacturing Corporation , a former plant in Springfield , Missouri owned by Navistar ( at that time , International Harvester ) which was in danger of being closed or sold to outside parties until its managers purchased the company . In the UK , New Look was the subject of a management buyout in 2004 by Tom Singh , the founder of the company who had floated the company in 1998 . He was backed by private equity houses Apax and Permira , who own 60% of the company . See also Buyout Takeover Management buy-in Leveraged buyout External links Definition of management buyout Buyout Blog Industry commentary Categories : Corporate finance | Management In other languages : Deutsch | Italiano | 日本語 | Nederlands | Polski | Slovenščina | 中文 