Funding a management buyout

What an MBO involves

In a management buyout, the existing management team acquires the company they already run, usually setting up a new company to make the purchase. It's a well-trodden succession route: the owner exits, and the people who know the business best take it on. The challenge is almost always funding — managers rarely have the full price in cash.

Your own stake

Funders expect the management team to put in real money — it proves commitment and aligns everyone's interests. It needn't be the whole price, but a meaningful personal stake is usually the foundation the rest is built on. How much depends on the deal, but 'skin in the game' is the phrase you'll hear, and it's not negotiable in spirit.

Borrowing against the business

The largest slice typically comes from debt raised against the company's own assets and cash flow — the business effectively helps buy itself. This is where affordability is everything: the acquired company must generate enough cash to service the borrowing and still trade. Over-gear the deal and a good business gets throttled by its own purchase debt. Test it hard with the affordability calculator.

Deferred consideration and the seller

Sellers often bridge the gap by leaving part of the price to be paid later — deferred consideration or an earn-out tied to future performance. It reduces the upfront funding needed and signals the seller's confidence. But it's a real obligation that competes with the trading debt for the same cash, so it belongs in your affordability sums, not outside them.

Fund it without personal guarantees where you can

Buyout debt frequently comes wrapped in personal guarantees — precisely when your own money is already committed. Reducing that personal exposure matters. Credicorp lends to the company, not to you personally, and takes no personal guarantee, keeping the acquisition debt on the business it's buying. Related reading: funding a business acquisition.