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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Management buy-out (MBO)

What is a management buy-out, and how is the purchase usually funded?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A management buy-out is the purchase of a business by the people who already run it, often from a retiring founder or a group selling a division. Managers rarely have the price themselves, so the purchase is usually funded by their personal stake, bank debt serviced from the business's own cash flow, a vendor loan from the seller and, in larger deals, equity from a private equity sponsor. A lender gains buyers who know the business, but reads how the stack fits: on a US$20m price with US$2m from management, US$4m of vendor finance and US$9m of bank debt, the remaining US$5m must come from somewhere else.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// THE FULL PAGE

Management Buy-Out: How a Lender Reads the Funding →

The buyers know the business. The cash still has to go round.

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FACILITIES AND THEIR SHAPE

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