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ACCA Strategic Professional · Advanced Financial Management · Business re-organisation

A management buy-out (MBO) differs from a management buy-in (MBI) principally because in an MBO:

In a management buy-out the existing management team buys the business it already runs from the current owners. In a management buy-in an external team takes over. MBOs rely on insider knowledge and are normally funded by a mix of debt, mezzanine and private equity.

  1. AThe acquiring management team is drawn from outside the target company
  2. BThe existing management team of the business acquires all or part of it from its current ownersCorrect
  3. CThe target must first be listed on a stock exchange
  4. DThe purchase is funded entirely by equity from the managers

Explanation

In an MBO the incumbent managers buy the business they already run, so they have inside knowledge and lower information asymmetry. In an MBI an outside team acquires the business and takes over management. Funding is normally a mix of debt, mezzanine and private equity, not managers' equity alone.

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