Transaction
Management Buyout (MBO) of 50% of the remaining shares of a service company.
Published financing features
- 100% financing
- Fixed rate term loan for buyout
- Amortization of 10 years
- Line of credit for day-to-day operations at prime + 0.50%
Published client benefits
- Extremely competitive interest rate
- Fixed rate with ability to repay 20% annually without penalty
- Removed balance of sale for a reduction in purchase price by having the ability to pay 100% of the purchase up front
- Funded file within 45 days
How this kind of financing works
A management buyout is financed against the business being acquired rather than the buyer's savings. The lender is underwriting whether cash flow covers the new debt service after closing, with room to spare, and whether it survives the departing shareholder's exit. That the management team has been running the company in substance for years is the buyer's strongest asset: there is no integration risk and no learning curve.
The structure normally has two parts. A term loan funds the share purchase, amortised over a period that keeps payments serviceable. Separately, an operating line covers day-to-day working capital, because a business that has just taken on acquisition debt still has receivables and inventory to fund. Financing only the purchase and leaving working capital to look after itself is a common and avoidable mistake.
Two features are worth negotiating specifically. An annual prepayment allowance lets a buyer pay debt down faster in a good year without a breakage cost. Fixing the rate on the term portion removes the interest-rate variable from a business that has enough of them. Where financing can cover the whole price, a balance of sale can be taken off the table — and a vendor paid in full at closing will often accept a lower price for that certainty.
Historical example only. It is not a promise of terms, availability, or results for a future transaction.
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