A management buyout (MBO) is one of the least understood but most effective succession options: the team already running the business buys it from the founder. We explain how it works in practice, how it is financed, and what role an investor plays.
There is a succession option that many founders never consider because they do not know it well: selling the business to the team that already runs it.
It is called a management buyout, or MBO. And when the conditions are right, it can be the most elegant solution to succession: the company stays in the hands of people who know it deeply, employees keep their familiar colleagues in place, clients experience continuity, and the founder gets the liquidity they were looking for without seeing their life’s work pass to strangers or a competitor.
In Spain, the MBO is less common than it should be, partly because there is little accessible information for non-financial audiences about how it actually works. This article aims to fill that gap.
A management buyout is a transaction in which the management team of a business — typically with the backing of a financial investor — acquires the company from its current owners.
The key element is that the managers go from being employees (or salaried executives) to being owners. That fundamentally changes their relationship with the business and their incentives. A CEO who owns 15% of the company thinks very differently from one who earns a fixed salary, however good that salary is.
An MBO is not the same as:
An MBO can be executed with or without an external investor, but in practice, for transactions of meaningful size, it almost always requires a financial partner to provide the bulk of the capital.
Not every business and not every situation is right for an MBO. The conditions that make it viable are:
A strong and motivated management team. An MBO only works if there is a team that has been running the company for years, knows it deeply, and has genuine motivation to become owners. If the team relies heavily on the founder for day-to-day decisions, the MBO does not solve the succession problem — it defers it.
Stable cash flows. The financial structure of an MBO often includes debt (in larger transactions). That debt is repaid from the company’s cash flows. Businesses with predictable revenues and reasonable margins are therefore better suited than those with highly variable cash generation.
A founder seeking a clean exit. The MBO is particularly compelling when a founder wants to retire with liquidity but does not want to sell to a competitor or to a fund that may sell the business to anyone within five years. The MBO ensures the company stays in known hands.
A reasonable price expectation. The management team does not have the financial firepower of a large industrial buyer or a major PE fund. If the founder is purely seeking the maximum possible price, the MBO may not compete. If the founder also values the future of the business, the MBO may be preferable even if the valuation is somewhat lower.
This is the part that generates the most confusion. Let us remove the mystery.
In a typical MBO, the purchase price is funded from three sources:
1. Management equity. The participating executives contribute personal capital. They do not mortgage their homes or take out disproportionate personal loans — they put in what they have available on reasonable terms. This capital typically represents between 5% and 20% of the total price, depending on the team’s means and the size of the deal. The exact amount matters less than the fact that the contribution is meaningful enough to create genuine alignment of interests.
2. Investor capital. The financial investor — in our case, Blue Mountain — provides the majority of the capital. They acquire a majority stake alongside the management team, which retains a minority but significant shareholding. The investor takes on the principal financial risk and receives a proportional stake in return.
3. Bank debt (in larger transactions). For transactions of a certain size, part of the financing can come from bank loans repaid from the company’s cash flows. This structure is known as a leveraged buyout or LBO when debt is the primary source of funding — though in the context of Spanish middle-market family businesses, leverage tends to be kept at moderate levels to preserve the company’s financial health.
Imagine an industrial distribution company with revenues of €40 million and EBITDA of €5 million. The agreed valuation is €25 million (5x EBITDA). The management team — CEO and three directors — wants to execute an MBO.
A possible structure:
At closing, the management team owns 30% of the company (their contribution as a percentage of total equity, which excludes debt). Blue Mountain owns 70%.
If in five years the company has grown and a new valuation is agreed at €40 million, the management team receives 30% of that value: €12 million. Their initial €2.5 million has become €12 million. The investor receives 70%: €28 million on the €15 million invested.
This is a simplification, but it illustrates the logic: the team takes real risk in exchange for real upside.
A good MBO investor is not simply a bank that lends money. They are a strategic partner who, ideally, brings three things:
Capital and structure. The transaction financing and the legal and tax structure that makes it viable.
Governance and support. A board seat, reporting processes that professionalise the business, access to a network for hiring quality executives, exploring markets, or closing financing transactions.
Patience. And this is crucial. In an MBO, the management team needs time to demonstrate that it can run the company without the founder. An investor with a five-year horizon can create additional pressure at a moment when the team is already managing the stress of the transition. A long-term investor — as we are — can accompany that process without artificial urgency.
The question that almost every founder has in the back of their mind when considering an MBO is nearly always the same: will they be able to run the business without me?
It is a legitimate question. The honest answer is: it depends on how much they have actually been running it already.
If the management team has spent five years making the day-to-day operational decisions, closing important sales, managing crises, negotiating with suppliers — with the founder as a reference and validator rather than an executor — then the answer is almost always yes.
If the management team executes but the founder decides on everything important, the MBO is not the problem: it is the symptom that there is prior delegation work to be done before considering any succession option.
At Blue Mountain we have been involved in processes where the founder spent eighteen months preparing the team before closing the MBO. That is not a delay — it is the most important investment they can make to ensure the transaction succeeds.
If you want to understand how we work with advisors and intermediaries on these structures, I recommend reading our intermediaries section. For additional context on the importance of management teams in acquisition processes, the articles the importance of the management team in an acquisition, how we structure an acquisition, and the business succession planning guide offer complementary perspectives.
An MBO is not the right option for everyone. But for the founder who has a strong team, wants a clean exit, and wants to see the company in trusted hands, it is one of the best options available.
By Blue Mountain Capital
By Blue Mountain Capital
By Blue Mountain Capital
If you wish to explore a potential collaboration or present an investment opportunity, we invite you to contact us. We guarantee absolute confidentiality in all our conversations.