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CA Final · Advanced Financial Management · Mergers, Acquisitions and Corporate Restructuring

In a management buyout (MBO) of a listed company, which feature is most characteristic?

A management buyout is characterised by the existing managers acquiring control of the business they run, normally funded through private equity and borrowings because their personal resources are limited. It differs from a hostile takeover by an outsider or a demerger.

  1. AThe existing management team acquires a controlling stake in the business, usually with financing from private equity or lendersCorrect
  2. BAn outside competitor acquires the company through a hostile tender offer
  3. CThe company's shareholders receive shares of a newly formed subsidiary in a demerger
  4. DTwo unrelated companies combine to diversify risk

Explanation

An MBO is where the incumbent managers buy the business they run, typically funded by debt and private equity as they lack enough own funds. A hostile tender by a competitor is a takeover, not an MBO, and a demerger is a restructuring without a buyout.

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