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← Series 79: M&A, Tender Offers & Restructuring
Series 79 practice questioneasyManagement Buyouts

A management buyout (MBO) is a transaction in which:

  1. AThe company's management team acquires a controlling interest in the company, often with the backing of a financial sponsor✓ Correct answer
  2. BThe company's shareholders vote to replace the entire management team
  3. CManagement receives stock options as compensation
  4. DThe company acquires a competitor to install its own management
Explanation

Why A — The company's management team acquires a controlling interest in the company, often with the backing of a financial sponsor

In a management buyout, the existing management team, typically in partnership with a private equity firm or other financial sponsor, acquires a controlling interest in the company from its current owners or public shareholders. MBOs leverage management's deep knowledge of the business to create value. They raise unique conflict-of-interest concerns because management serves as both buyer and fiduciary for selling shareholders.

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