What is a management buyout?
A management buyout, an MBO, is the purchase of a business by the managers who already run it from its present owner, most often a founder retiring or a group selling a subsidiary. The managers rarely have the price in cash, so the deal is built from layers: a new company they own buys the shares or the trade and assets, funded by debt the business itself will repay, a loan note the seller agrees to be paid over time, and the managers’ own money for the rest.
A management buy-in, an MBI, is the same structure with an outside manager or team buying in; a buy-in management buyout, a BIMBO, mixes the two. We have access to a range of UK commercial finance lenders through our principal, White Rose Finance Group Limited. Each lender publishes its own criteria for acquisition lending and makes its own decision.
How the price is funded
From the top of the structure down. Senior debt: a term loan sized on the cash flow the business has shown in its accounts, secured by a debenture over the target’s assets once it is owned, and sometimes by asset finance against its equipment or invoice finance against its debtors. A vendor loan note, where the seller accepts part of the price as deferred consideration paid over an agreed period, ranking behind the bank. Where there is still a gap, a mezzanine layer or an equity investor. And the managers’ own equity, which the lenders expect to see because it is the layer that bears the first loss.
The proportions differ with every deal and every lender; we show what each lender provides so you can compare it, and no ratio or rate appears on this page.
The new company
The managers usually form a new limited company, often called Newco, to make the purchase, so that the debt sits in the buyer rather than in the business being bought and the sellers are paid by a company that owns nothing else. After completion the target becomes Newco’s subsidiary, or its trade and assets are transferred into Newco, and the group’s cash flow services the senior debt. The lenders take their security over the target, which is why the structure works only once the purchase has completed and the charge can be registered at Companies House within the 21 days Part 25 of the Companies Act 2006 allows.
Financial assistance
Section 678 of the Companies Act 2006 prohibits a public company from giving financial assistance for the purchase of its own shares. The prohibition no longer applies to a private company buying or being bought, since the Act removed it for private companies from 1 October 2008, which is what allows a private target to grant security to the lenders funding its own purchase. The directors still owe their duties to the target, and the lenders’ solicitors check that the target’s board has properly approved the security it grants.
What the funders read
Three years of filed accounts and current management figures for the target, because the debt is sized on its cash flow rather than on the managers. The sale and purchase agreement and the price. The managers’ record in the business and the equity they are putting in. A forecast showing the debt serviced after the owners’ drawings. The vendor’s terms, because a seller who stays paid over time is a seller who believes the business will keep earning. And the security available: the debenture, the equipment, the debtor book and any property.
We work with UK limited companies and LLPs only, for business and commercial purposes. Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file. We arrange finance only once a business has traded for 3 months, for amounts from £10,000.
Where it goes wrong
Too much debt for the cash flow, so that one bad quarter puts the covenants in breach. A price agreed before the funding was tested against any lender’s published criteria. A seller who wants all cash on completion, which removes the vendor loan note and widens the gap for the managers to fill. And a management team that has run the operations but never read the accounts, which the lenders’ questions will find out in the first meeting.
Frequently asked questions
Do the managers need to put in their own money?
Lenders expect to see it, because it is the layer that absorbs the first loss and it shows commitment. The amount differs with every deal and every lender; each publishes its own criteria.
What is a vendor loan note?
Part of the price that the seller agrees to be paid later, over an agreed period and usually with interest, ranking behind the senior lender. It reduces the cash needed on completion and keeps the seller interested in the business continuing to earn.
Can the business being bought fund its own purchase?
A private company can grant security over its assets for the debt that buys it, since the financial assistance prohibition in section 678 of the Companies Act 2006 applies to public companies only. The debt is still serviced from the business’s own cash flow.
What is the difference between an MBO and an MBI?
In an MBO the existing managers buy. In an MBI an outside manager or team buys in. Lenders read an MBI harder because the buyers have no record in the business, and ask for more equity and more evidence.
Is CapExpand regulated?
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. If you have a complaint, our complaints page explains how it is handled.
How is CapExpand paid?
We will receive commission from lenders. On some cases we also charge a fee, which we set out in writing and agree with you before you proceed.
More funding questions answered
- What is an arrangement fee?The one-off charge a lender makes for setting up a facility, deducted, paid or added to the loan, and the other fees that sit beside it.
- What is an early repayment charge?The sum a lender charges if a loan is repaid before a date in the agreement, how it is calculated, and how it differs from an exit fee and a minimum interest period.
- What is a director’s loan?Money passing between a company and a director outside salary, dividends and expenses, in either direction: what the Companies Act requires and how a lender reads the balance.
- What do lenders look for in a business loan application?The six things a lender reads before it decides: affordability, trading time, the credit files, the purpose, security or the guarantee, and the conduct of the bank account.
- What is a valuation report?The surveyor’s written opinion of a property’s value prepared for the lender under the RICS Red Book: what it contains, the bases of value, and why the figure decides the loan.
- What is a bridging loan?Short-term borrowing secured on property, repaid in one sum from a defined exit: the four things that define it, what it is for, and what it is not.
Buying the business you run
The price, the target’s accounts and what the managers can put in are enough for us to check the case against lenders’ published criteria before anything is sent anywhere.
Sources
Checked 26 October 2026. This page explains the structure of a buyout in general terms; each lender publishes its own criteria and terms, and nothing on this page is a quote or legal advice.
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. We do not provide financial advice.