Tax on management buyouts—background
Tax on management buyouts—background

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Tax on management buyouts—background
  • What is a management buyout?
  • How is a management buyout structured?
  • How is a management buyout financed?
  • What steps are involved in a management buyout?
  • What are the options for exit?

The acquisition of a business by way of a management buyout (MBO) is one of the most commonly encountered private equity-backed transactions. This Practice Note provides some basic background information about MBOs, by answering the following questions:

  1. what is a management buyout?

  2. how is a management buyout structured?

  3. how is a management buyout financed?

  4. what steps are involved in a management buyout?

  5. what are the options for exit?

For a summary of the tax issues relevant to the UK management team in a UK MBO, see Practice Note: Management buyouts—summary of tax issues for management.

For details of the tax issues relevant to the UK acquisition group in a UK MBO, see Practice Note: Buyouts—tax issues for the acquisition group.

What is a management buyout?

An MBO is where the existing management team (or some members of the team) acquire a stake in the business that they manage, usually with the help of private equity financing. The private equity firm also receives a stake in the business and the incumbent management remain in place post-acquisition.

There are a number of variants to an MBO, including:

  1. a management buy-in (MBI) where a new management team acquires a stake in the business and will be running it post-acquistion

  2. a buy-in management buyout (BIMBO) where the team acquiring a stake in the business includes a