Management buy-out
A management buy-out transfers ownership to managers who already operate the business, usually with funding from lenders, investors or both. Their knowledge can support continuity, but financing, valuation, conflicts of interest and the feasibility of the business plan require careful evaluation. Debt service can be substantial, particularly in a leveraged transaction. The sale process should protect the seller's interests and handle confidential information and applicable legal requirements appropriately.
Worked example
An existing management team offers to purchase a subsidiary for $30 million, funded by $8 million of its own and investor equity and $22 million of debt. It tests whether future cash flows can support debt service under adverse scenarios.
Common mistake
Calling any acquisition by managers a buy-out without checking whether they are the existing managers, or assuming the business can service debt merely because the purchase price is agreed.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Direct | September 2026–June 2027 |