As an entrepreneurial or family business owner, selling your company is more than a transaction, it’s a once-in-a-lifetime decision that will shape your legacy, impact your team, and influence your long-term wealth.
Among the many options available to owners exploring an exit, Management Buyouts (MBOs) can seem like one of the most natural and sentimental choices. After all, who better to carry on the business than the very team who helped build it?
But in our experience at STS Capital Partners, MBOs often don’t deliver the outcomes owners truly want, and in many cases, they create unforeseen risks that can derail both value and legacy.
Table of Contents
1. What is an MBO and Why Do Owners Consider it?
2. Where MBOs Go Wrong: Real-World Lessons
3. The Strategic Sale Advantage
4. What If You Still Want to Take Care of Your Team?
5. Legacy Deserves More Than Sentiment
1. What is an MBO and Why Do Owners Consider it?
A Management Buyout is when your company’s current leadership team buys the business from you, either in full or in part. It’s usually driven by:
- A founder preparing for retirement.
- A parent company divesting a non-core division.
- An owner looking to reward loyal executives.
It can feel like the most seamless and emotionally satisfying path forward. But the reality is far more complicated.
2. Where MBOs Go Wrong: Real-World Lessons
At STS, we’ve advised on hundreds of successful exits for entrepreneurial and family-owned businesses. We’ve seen MBOs go sideways more often than they succeed.
Conflict of Interest in Disguise
The moment your management team steps into buyer mode, especially if, and most usually, backed by private equity, they’re no longer your partners. They become your counterparty in a negotiation. At the guidance of their financial backer, their job is to buy low. Yours is to sell at full value.
This conflict often erodes trust and creates tension in formerly strong relationships. One example we encountered involved a high-performing jewelry business. The management team tried to buy it from the founder using external capital. What started as a “friendly internal handoff” turned into a contentious negotiation that cut the seller’s value in half.
A Bid That Fails Can Break the Business
In another case, a CEO assembled financing and bid $140M for the company he was running. The board rejected the offer. The result? The CEO had to be removed. Why? Because it’s near impossible to relaunch a sale process with a failed internal bidder still leading the company. The business was effectively stuck, and value was lost.
Poor Advisory Creates Poor Outcomes
One of the biggest mistakes we’ve seen is advisors enabling MBOs without protecting the seller’s interests. As advisors to owners, not buyers, our job is to ensure outcomes that maximize financial value, legacy, and positive impact. That means recognizing when an MBO is not in your best interest and guiding you toward better alternatives.
3. The Strategic Sale Advantage
When we talk about “Selling to Strategics” at STS Capital Partners, we mean aligning sellers with buyers who can:
- Pay maximum value for strategic synergies or “Rembrandts in the Attic”.
- Preserve and grow the business’s mission and impact.
- Be a “good home” for the business, creating more opportunities than were otherwise possible for both buyer and seller.
- Offer legacy-minded owners more ways to take care of their team, community, and future.
This approach consistently delivers higher strategic valuations allowing you to reward employees, support charitable goals, or fund new ventures with greater freedom and impact.
Let’s be clear: strategic buyers are not just private equity with a bigger check book. They are industry leaders who see your business as a growth platform and/or vice versa, not just a financial asset. Because of that, they are often willing to pay two to four times more than an MBO or pure financial buyer would yield.
4. What If You Still Want to Take Care of Your Team?
You absolutely can. In fact, we encourage it. But instead of leaving value on the table through an MBO, we help clients structure deals that achieve the main goals:
- Maximize the sale price.
- Land in an optimal strategic home that creates greater opportunities and stability for the employees, while also preserving legacy.
- Allocate a portion of proceeds to key employees, charitable trusts, or future incentives.
In other words, lead with value, then share it intentionally.
5. Legacy Deserves More Than Sentiment
“Selling your business to insiders may feel good, but if it compromises your value, creates internal conflict, or limits your future options, it’s not serving your legacy.” – STS President of North American Strategies, Andy Harris.
At STS Capital Partners, we believe in helping owners achieve Extraordinary Exits™ – financially, personally, and philanthropically. If you’re considering a management buyout, let’s have a conversation first. There may be a better path forward, one that honors your people and the true value of what you’ve built.
