What is a Management Buyout (MBO) in Switzerland?

A Management Buyout (MBO) is the acquisition of a company by its existing management team, often with the support of external financing (bank debt, mezzanine, or private equity). MBOs represent approximately 25% of Swiss SME succession solutions. ### Technical Explanation #### Typical MBO Financing Structure * Management equity: 10-25% of purchase price (personal savings, loans) * Senior debt: 40-50% from Swiss banks (based on 3-4× EBITDA leverage) * Mezzanine / subordinated debt: 15-25% from specialized lenders * Seller loan (Verkäuferdarlehen): 10-20% deferred payment from owner #### Why MBOs Often Trade at Lower Multiples 1. Limited capital: Management teams have finite personal resources 2. No synergies: Unlike strategic buyers, MBO teams don't bring revenue or cost synergies 3. Financing constraint: Banks limit leverage to 3-4× EBITDA for Swiss SMEs 4. Information asymmetry works in reverse: Management knows ALL the problems Typical MBO discount vs. strategic sale: 15-25% lower enterprise value. #### Swiss Tax Advantages of MBOs * Seller receives tax-free capital gain (private share sale) * Interest on acquisition financing is tax-deductible for the buyer entity * Seller loan interest is taxed as income but at lower effective rates #### When MBO Is the Right Choice * Owner values continuity over price maximization * Management team is competent and motivated * Business is too small or specialized for strategic buyers * Owner wants to retain influence through a board seat or seller loan #### Structuring the MBO 1. Management creates a NewCo (acquisition vehicle, typically an AG) 2. NewCo raises debt and equity financing 3. NewCo acquires 100% of target shares 4. Target cash flows service the acquisition debt 5. Over 5-7 years, debt is repaid and management builds equity