Management Buyouts

This chapter discusses regulatory aspects of public market transactions. Management Buyout (MBO) is a specific type of Mergers and Acquisition transaction. An MBO occurs when a team of managers purchase a company, subsidiary, division or business unit from its existing owner. They typically borrow a large portion of the purchase price. A Management Buyin occurs when an external team of managers purchase a company, subsidiary, division or business unit from its existing owner. An Institutional Buyout is a buyout instigated and led by a private equity fund institution. Management is either retained following the acquisition or new managers are brought in on closing. High‐yield bonds are bonds issued by companies with a credit rating below what is called investment grade. Companies that are too small to use the bond markets either traditional or high yield, often turn to mezzanine funders. This feature, plus the ability to structure each deal more than a bond issue, makes mezzanine a popular source of Leveraged Buyouts (LBO) financing. However, one of the main prerequisites for a successful buyout is the purchase of predictable cash flows at a reasonable price.