Private equity, management buyout & exit

What we do

In a management buy-out (MBO), the management or a member of the management team of a company becomes a (co-)owner of the business. A management buy-out can be attractive both to an owner wishing to sell and to management members with the ambition to become owners of the company they work for. A management buy-in (MBI) involves an external buyer who becomes part of the management team after purchasing the shares. An MBO or MBI is typically preceded by valuation, discussions, and negotiations. There are also other exit variants worth considering, such as the pre-exit and the smart exit.

We have the knowledge and expertise to assume diverse roles: from advisory services to dispute resolution. We have an experienced team of lawyers and legal experts in the field of private equity transactions. Contact us to discuss the possibilities.

MBO, MBI and the exit variants

A management buy-out (MBO) and a management buy-in (MBI) are both forms of business acquisition, but with their own distinct dynamics. In an MBO, the existing management acquires the shares from the current owner; in an MBI, an external manager buys into the company and joins the board of directors after the acquisition. Additionally, there are exit variants that may be of interest to an owner wishing to sell, such as the pre-exit (a phased sale to a private equity firm, in which you remain actively involved for several years) and the smart exit (a structured sale where tax and legal optimization go hand in hand). Which route is best depends on your goals, the tax implications, the continuity of the business, and the financing of the transaction. We advise both international corporations and the local baker on the variant that suits their situation.

The legal process step by step

A management buy-out or private equity transaction typically consists of three phases, each with its own points of attention:

• Preparation: a non-disclosure agreement (NDA) before sharing sensitive figures, a valuation by an independent expert, and a letter of intent, optionally including an exclusivity clause and exclusivity period.
• Research and negotiation: a due diligence investigation (legal, financial, tax, and commercial) and negotiations regarding price, guarantees, and financing. Read more about our due diligence investigations.
• Closing: signing of the purchase agreement, the financing documentation, and the shareholders' agreement, followed by the notarial transfer of the shares.

Purchase agreement, warranties and indemnities

The share purchase agreement (SPA) governs the transfer of shares and contains the price, the conditions precedent, and the guarantee framework. For the buyer, the guarantees and indemnities crucial: they protect against obligations or risks that arose prior to the transfer but only come to light afterwards. Agreements are often made regarding an earn-out (part of the price dependent on future results) or a vendor loan (financing by the seller). A good balance between guarantees, threshold amounts, ceilings, and escrow prevents protracted disputes. Should things nevertheless go wrong, we will assist you in acquisition disputes.

Financing of the acquisition

Management rarely possesses sufficient equity to fully cover the purchase price itself. An MBO is therefore typically financed through a mix of sources: an equity contribution (often 10 to 30% of the purchase price), a bank loan secured by rights to the company, potential mezzanine financing, and the contribution of a private equity investor. Clear financing and security agreements—pledge, mortgage, and guarantees—are essential to avoid surprises. We carefully align the financing documentation with the purchase agreement and the shareholders' agreement.

Management participation in private equity

When a private equity firm steps in, management often becomes a co-shareholder. This involves specific instruments: rollover (reinvestment of part of the sales proceeds), sweet equity (shares on favorable terms as an incentive for management), vesting , and a lock-up period. The actual value of the participation is determined by leaver provisions (good leaver/bad leaver), the exit waterfall, and the information and control position of management. We advise management teams and investors on these provisions to ensure the agreements are balanced and workable.

Conflict of interest of the management

In a management buy-out, the management purchases the business from the company or its shareholder. This can give rise to a conflict of interest: the director sits on both sides of the table, as both buyer and director. Pursuant to Article 2:239, paragraph 6, of the Dutch Civil Code , a director with a direct or indirect personal interest that conflicts with the interest of the company must refrain from deliberation and decision-making. A decision taken in violation of this rule may be voidable. Careful decision-making—and, if necessary, decision-making by the general meeting—is therefore of great importance. This relates directly to corporate governance.

The shareholders' agreement and exit clauses

If management does not acquire all shares, or if an investor joins the group, the shareholders' agreement regulates the mutual relations: voting rights, decision-making, dividend policy, and the procedure upon departure. For a smooth exit, the drag-along (a majority shareholder can compel the remaining shareholders to sell along with the shares, ensuring 100% delivery) and tag-along (minority shareholders may sell along under the same conditions) are particularly important. Good leaver and offering obligations prevent a shareholder from being left with unsellable interests. We draft these clauses with the eventual exit in mind.

Frequently Asked Questions

What is the difference between an MBO and an MBI? In a management buy-out, the existing management takes over the company; in a management buy-in, an external manager buys in and joins the board of directors.

Who finances a management buy-out? Usually a combination of the management's own contribution, a bank loan, sometimes a vendor loan from the seller, and/or a private equity investor.

What is a pre-exit? In a pre-exit, you sell your shares in phases — often to private equity — and remain involved in the growth of the company for a few years, before finally exiting at a higher value.

Why do I need a lawyer or legal expert for a management buyout? The valuation, financing, guarantees, conflicts of interest, and shareholder agreements together determine whether the acquisition succeeds. Proper guidance prevents costly disputes later on.

Our approach: lawyers and in-house counsel

MKB Juristen works with mixed teams of lawyers and in-house counsel. This allows us to combine legal acumen with practical business knowledge, for international corporations just as well as for the baker on the corner. We guide you from valuation and negotiation to closing and, if necessary, dispute resolution. This page is part of our broader expertise in Corporate, Mergers and Acquisitions; please also view our pages on mergers and acquisitions and venture capital, start-up & scale-up. Contact us to discuss your MBO, MBI, or exit without obligation.