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An Introduction to Management Buyouts: What You Should Know

Ownership in business often changes. Even if a business was originally founded by a single person, it may have a dozen or more owners later down the road. Managers, in fact, can become owners. Management buyout allows managers to become owners. If you’re the manager of a business, you may want to execute a management buyout to become an owner.

An Introduction to Management Buyouts: What You Should Know

What Is a Management Buyout?

A management buyout occurs when the management team of a company acquires an ownership stake in a business. The management team will buy at least 50% of the business that they manage from the current owners. Assuming the management buyout goes through smoothly, it will give the managers a controlling stake in the business.

How Management Buyouts Work

Management buyouts typically involve financing from a private equity firm. Managers don’t always have a sufficient amount of capital to acquire the businesses for which they work. As a result, they seek financing from a private equity firm.

There are private equity firms that offer financing for management buyouts. They provide capital to managers who are looking to acquire the businesses for which they work. If you’re part of a management team, you may want to partner with a private equity firm so that you can execute a management buyout. For a fee — typically in the form of a small ownership stake — the private equity firm will provide you and the rest of your management team with enough capital to buy at least 50% of the business.

Management Buyout vs Management Buy-In

The terms “management buyouts” and “management buy-ins” are often used interchangeably. But don’t let that fool into thinking they are the same. Management buyouts occur from within a given business, whereas management buy-ins occur from outside of a given business.

During a management buyout, managers who already work for a given business will buy it out. During a management buy-in, external managers who don’t currently work for a given business will buy it out. They are similar processes in which managers buy a controlling stake in a business, but they aren’t the same.

In Conclusion

A management buyout is essentially a type of acquisition. It involves a management team acquiring the business for which they work — typically with the financial assistance of a private equity firm. The private equity firm will provide the management team with capital. The management team can then use this capital to buy at least 50% of the business for which they work.

This article was brought to you by Intrepid Private Capital�Group�� A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our�website.

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Intrepid Private Capital Group • May 12, 2022


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