MBO and MBI as Career Turbo

For managers, the opportunity of a Management-Buy-out or a Management-Buy-in is a highly attractive career option. The MBO/MBI instrument provides the opportunity to make the transition from employee to entrepreneur without starting a new business. This significantly reduces the risk of entrepreneurial failure, which is relatively high especially in the initial stages of a company.

On the other hand, there is the considerable capital requirement necessary to acquire an existing, established company. Only in rare cases will the management have sufficient financial resources of its own to pay the necessary purchase price out of its own resources. Most MBOs and MBIs are therefore carried out in conjunction with a Private Equity Fund , which provides the bulk of the required equity. The involvement of an investment company has other advantages from the management's point of view. On the one hand, operational managers usually lack experience in implementing a company acquisition. On the other hand, the organisation of the debt capital required for the purchase is also rather difficult for most managers. Investment companies have the necessary experience in both areas.

The participation of management in the capital of the company is one of the core elements of the business model of private equity firms. In most cases, these firms do not aim to have their own role in the operational management, but rather leave this entirely to the management. This creates a high degree of independence for the management within such a model. From the perspective of the private equity firm, the participation of management in the company creates an economic alignment of interests between the majority shareholder (the private equity firm) and management. As a result, the so-called principal-agent conflict is overcome in the context of MBO/MBI.

Private equity firms usually reward the willingness of management to take on entrepreneurial risk with very generous participation conditions that allow managers to participate disproportionately in the business success with an appropriate capital investment. Therefore, a successful MBO is also highly attractive from a financial perspective.

Experienced MBO and MBI managers are in high demand in the job market, so a successful MBO/MBI can not only be financially attractive, but can also be a career booster.