Management Buyout (MBO)

The purchase of a company by its own senior managers, financed with debt and outside equity because management rarely has the price. In a listed-company MBO the team rolls its existing shares into the acquisition vehicle as the ordinary equity, an outside investor supplies the rest (often as preferred equity), banks lend the senior debt, and the independent directors negotiate for the shareholders being bought out. The team’s ownership of the ordinary class says nothing about its share of the proceeds until the preferred is paid.