Management buyout
A management buyout is a transaction in which a company's existing managers buy all or a controlling part of the business from its current owners, usually with outside financing.
In a management buyout, often shortened to MBO, the people who already run the company become its owners. Because managers rarely have enough personal capital to buy a business outright, the purchase is usually financed with a mix of bank debt, investment from outside backers and sometimes payment to the seller spread over several years. The terms vary widely from one transaction to another.
A family usually considers an MBO when there is no family member who wants or is ready to lead, or when the family wants to step back from ownership while keeping the company in trusted hands. It can preserve the culture and the relationships the founder built, because the buyers already know the business. It can also be partial: the family keeps a stake while managers take control.
The article when your child does not want the family business covers how families reach that point.
Management buyout or ESOP?
Both move ownership to people inside the company. In an MBO, a small group of senior managers buys the business. In an ESOP, a trust holds shares on behalf of a much broader group of employees. The two can be combined, and both are forms of liquidity event for the selling family.
Why it matters for succession
An MBO is an ownership decision, but it changes the leadership question too. If the family keeps a stake or a board seat, someone in the family still needs to represent it with authority. If a family successor stays on in a senior role under new owners, their position changes again. Considering an MBO early also forces a useful question: is the family choosing it because no successor wants the role, or because no successor has been prepared for it?
This is a general definition only. The family should involve its lawyer, accountant and financial advisor before exploring a management buyout.