Every so often, you come across a succession plan that just fits.
One of the most rewarding, in my experience, is a management buyout — whether it’s a full leadership team stepping up or one key individual who has effectively been running the business already. When the alignment is there, these transitions feel natural, smooth, and genuinely meaningful for everyone involved.
They protect the legacy, keep the culture intact, and reward the people who’ve helped build the business. But like any transaction, an MBO only works if the structure is thoughtful and the preparation is real.
Here’s how I see them.
What Exactly Is a Management Buyout?
A management buyout (MBO) happens when an existing leader — sometimes a team, sometimes one standout manager — purchases the company from the current owner.
Instead of opening the process to outside buyers, control stays with someone who already understands the operation at a deep level.
I see MBOs work well when:
- The owner values continuity.
- There’s a capable internal successor — whether that’s one person or a full team.
- The business is stable and cash-flow positive.
- There’s mutual trust and open communication.
These are typically founder-led businesses where relationships, culture, and long-term continuity matter as much as valuation.
Why Owners Choose an MBO
For many founders, selling to the people already running the business is the cleanest and most values-aligned option.
The appeal is pretty simple:
- Legacy stays intact.
The values, culture, and customer relationships continue without disruption.
- Confidentiality is easier to maintain.
No broad market process, fewer eyes, less churn inside the business.
- Faster learning curve.
The successor already knows the business. There’s no six-month onboarding of an external buyer.
- Personal satisfaction.
Watching someone you mentored step into ownership can be incredibly meaningful.
Why Managers Step Into Ownership
Whether it’s a single manager or a full leadership team, the motivations are similar:
- They believe deeply in the business’s long-term potential.
- They want more control over strategic direction.
- They’re invested in the people and brand they’ve helped build.
The opportunity is huge — but financing can feel intimidating if you’ve never bought a company before.
Why Banks Love MBOs (This Is a Big One)
One of the strongest points in favour of an MBO is that lenders are incredibly supportive of these transactions.
When the buyer is already running the business, banks see:
- Lower operational risk
- Strong transition continuity
- A proven operator stepping into ownership
- A seller often willing to consult or provide transition support
Because of this, banks are often willing to take on a larger share of the financing than they would in a traditional third-party sale.
This usually means:
- Lower equity cheques from the management group
- Smaller VTBs required from the seller
- A higher portion covered by senior lending
- Strong comfort from lenders when the seller will remain involved as a consultant for 6–24 months
This is one of the reasons MBOs tend to come together more seamlessly — everyone knows the business already works under this leadership.
How the Financing Stack Typically Looks
Most MBOs I’ve worked on include a mix of:
- Senior bank financing (often the largest slice in an MBO)
- Seller financing (usually smaller than in a typical sale)
- Management equity (lighter than many expect)
- Occasional investor or PE involvement for larger transactions
The structure needs to be fair, realistic, and bankable — with enough room for the new owner(s) to grow into the next phase.
Tax Considerations (Worth Watching)
There are some emerging tax planning opportunities tied to internal transitions and management-led ownership changes.
We haven’t seen wide implementation yet, and not every situation qualifies, but it’s something to keep on the radar — especially for owners planning multiple years ahead.
I’m not suggesting this drives the decision today, but it could become a meaningful layer of value in the future.
When an MBO Is the Right Fit — And When It Isn’t
An MBO tends to work best when:
- The business isn’t overly dependent on the founder.
- There’s a capable internal successor (one person or a team).
- Cash flow is strong and predictable.
- The seller values continuity over maximum headline price.
Situations where an MBO is harder to execute:
- There’s no clear internal successor.
- Key relationships are tied directly to the owner.
- The business can’t support acquisition debt.
- Management isn’t aligned on ownership responsibilities.
These conversations are important to have early.
What We’re Seeing in Today’s Market
Across Ontario and the broader lower-middle market, interest in MBOs continues to increase — especially for companies in the $1M–$5M EBITDA range.
Banks are leaning into these deals, management teams are more open to ownership than ever, and founders are prioritizing continuity.
The Advisor’s Role
Even though MBOs feel “in-house,” they’re still complex transactions.
A good advisor helps:
- Test valuation and feasibility
- Build a financing structure that the bank will support
- Balance incentives between seller and buyer
- Coordinate lenders, accountants, and lawyers
- Keep relationships strong throughout the process
The goal is clear: a transition built on trust, clarity, and long-term sustainability.
When an MBO works, it’s one of the cleanest and most meaningful exits a founder can experience — continuity for the business, opportunity for the successor, and peace of mind for everyone involved.
If you’re considering an MBO as an owner or as the manager stepping up, I’m always happy to talk through feasibility, structure, and next steps. There’s a right way to set these up, and it starts with a conversation.
Jim Friesen, MBA, CPA, CM&AA
Founder
