NAME: ROOMA EJAZ

CLASS: BS A&F (8A)

DATE OF SUBMISSION: 2/JAN/2021
ENROLL NO: 02-112171-024
TOPIC: MANGMENT BUY-OUT
COURSE: CORPORATE RESTRUCTURING

MANAGMENTBUY-OUT:
A management buyout (MBO) is a process where the management team of a company buys the
company's assets and activities they control. In an attempt to simplify operations and increase
profitability, the key reason for a management buyout (MBO) is to encourage a business to go private. A
management team pools capital in a management buyout (MBO) to buy all or part of a company they
control. Funding usually comes from a combination of personal capital, private equity financiers, and
seller-financing. A management buyout (MBO) stands in contrast to a management buy-in, where a firm
is acquired by an external management team and replaces the current management

INCENTIVES TO DO AN MBO:
There are valid reasons/motivations for the implementation of an MBO by both sides (seller and buyer).
An MBO gives them peace of mind for an owner who wants to retire and cash out, that they are
transferring the business along to a group they know and trust. This can be especially important for a
family business or a business that employs a large number of people in a small town. In these cases, the
existence of an organization really matters.
For the seller, the management buyout process often has competitive benefits. Doing a contract with the
management of the company reduces the risk of exposure of sensitive information to the owner during the
sales process. In addition, because the buyer, who has been managing the company, knows the asset well,
the closing process can be easier.
MBOs can also be beneficial to a company because they can use an MBO to "go-private" and undertake a
long-term transformation outside the public eye or sell/divest a business that is no longer central to their
company or of interest to their shareholders.
An MBO for a management company, the consumer, is also persuasive. Management aims to gain more
direct financial benefits for the hard work they put into increasing the company's value. A management
team pursuing an MBO is comfortable that they will use their experience and expertise to expand the
organization and enhance its activities.
An MBO is also the simplest, fastest, and least risky way to take a significant equity stake in a company
for confident management teams. The buyers have had an inside look at the asset they are purchasing in
an MBO; this should reduce the investment risk.

An MBO may also benefit stakeholders outside of the buyer and seller. Since the same management team
remains in place, these different stakeholders gain assurance that the activities and service of the company
will be continuous.

EXAMPLE OF MBO:
the founder of Dell (Michael dell), the computer company paid paid $25 billion in 2013 as part of a
management buyout (MBO) of the company he originally founded he originally founded, taking it
private, so he could exert more control over the direction of the company.