Leveraged buyouts have long been utilized as a means to acquire businesses. A leveraged buyout, or LBO, involves the use of borrowed money, in conjunction with equity capital, to finance a change in a company’s ownership. A management buyout is a type of LBO in which the acquiring group is led by the target company’s existing management. Through these transactions, operating management can acquire an ownership stake in the business it runs.
Management teams often turn to equity sponsors for financial backing when they have opportunities to acquire their companies; however, there are many benefits of using mezzanine financing in a management buyout including the following: