A type of leveraged buyout (LBO) that involves the purchase (buyout) of a firm by its own senior management, whether in its entirety or a specific part of it. The buying senior team uses the assets of the firm as collateral, while setting plans for repayment of debt using future cash flows generated by the assets. In a leveraged buyout, the buyer holds a controlling interest in the purchased firm, and hence can control its decision making by defining the course of action for the business and restructuring it, including its operations and management.

This transaction is a type of acquisition that is financed by pooled resources of an existing management team to acquire an operating entity from within. It usually happens in private firms when an incumbent owner retires and existing management coordinates a “buyout”, by pooling own resources, to take control over the firm.

Management buyouts (MBOs) can be a win-win for multiple parties involved, including buyers, sellers, investors, and shareholders. The transition process can take place in an efficient and smooth manner  relative to leveraged buyouts that are externally instigated.