In an MBO, people who already run the company take it over. They contribute their own capital, often through a newly formed acquisition vehicle. The rest is financed by banks, development banks, occasionally a financial investor and often the seller, for example through a vendor loan or rollover equity.
For owners of mid-sized companies, an MBO is an obvious succession solution. Management knows the customers, employees and processes, so continuity is preserved. According to the KfW Succession Monitor Mittelstand 2025, 28% of owners seeking a successor are considering a handover to employees. The drawback: the buyers rarely have enough capital, so the purchase price is often lower than in an auction process.
In practice, a conflict of interest arises. The managing director negotiates as a buyer but still owes duties to the company. Clear rules on access to information and confidentiality are therefore important. Banks mainly assess whether cash flow can service the debt.
Example
Hypothetical example: Two managing directors take over a machinery manufacturer for €6 million. They contribute €0.9 million of equity, the bank finances €3.9 million and the seller grants a loan of €1.2 million. This amounts to 15% equity, 65% bank debt and 20% vendor loan.
MBO vs. MBI
| Feature | MBO | MBI |
|---|---|---|
| Buyer | Internal management | External managers |
| Level of knowledge | Very high | Only after due diligence |
| Acceptance within the team | Usually high | Has to be earned |
| Typical purchase price | Rather moderate | Depends on financing |
Sources
- Nachfolge-Monitoring Mittelstand 2025: Pläne für Geschäftsaufgaben wachsen erneut, Kaufpreisvorstellungen deutlich gestiegen, KfW Research (Fokus Volkswirtschaft Nr. 526)