Management buy-out: selling to your executives
Introduction
You are approaching retirement and looking for a trustworthy successor for your business? The solution may already be within your offices. A Management Buy-Out (MBO) involves selling your SME to your own senior executives. This form of management succession is gaining popularity in Switzerland, particularly in family businesses and established SMEs.
Unlike a traditional external sale, an MBO offers specific advantages: your executives already know the business, the clients and the teams. The transition is smooth, company culture is preserved, and you retain control over choosing your successor. However, this option also raises complex questions: do your executives have the financial means? How should the financing be structured? What legal pitfalls should be avoided?
This practical guide details the MBO process in Switzerland, from initial valuation to final signature. You will discover the key stages, specific legal and tax aspects, as well as concrete advice for succeeding with this particular form of succession.
📌 Summary (TL;DR)
A Management Buy-Out allows you to sell your business to your senior executives, guaranteeing operational continuity and preservation of company culture. This form of succession requires rigorous assessment of the acquirers' financial capacity, objective valuation, and legal structuring adapted to Swiss specificities. The main challenges concern financing (often via seller financing or LBO) and tax implications, but the MBO remains an attractive option for sellers wishing to transfer to trusted individuals.
📚 Table of contents
What is a Management Buy-Out (MBO)?
A management buy-out (MBO) refers to the acquisition of a company by its own senior executives. These individuals, who know the business perfectly, become owners of the company they previously managed.
This should be distinguished from an MBI (Management Buy-In), where external managers acquire the company, and a BIMBO (Buy-In Management Buy-Out), which combines internal and external acquirers.
In Switzerland, MBOs are gaining popularity for SMEs. They offer an alternative to family succession or external sale, particularly when no heir is available or interested. Operational continuity and mutual trust explain this growing interest.
To compare the different options, consult our article on family succession vs external sale.
The advantages of an MBO for the seller
Selling to your executives presents several concrete advantages:
- Assured continuity: Company culture and values are preserved by successors who already embody them.
- Mutual trust: You know the capabilities and commitment of your colleagues.
- Facilitated transition: Support is natural, without a learning period for the business.
- Jobs maintained: Teams remain in place, reassuring clients and partners.
- Discretion: No need to actively seek external acquirers or multiply contacts.
- Financial flexibility: Seller financing allows payment to be spread over several years.
Challenges and points of attention
An MBO in Switzerland also involves challenges that must be anticipated:
- Limited financial capacity: Executives rarely have the necessary funds, requiring substantial bank financing or significant seller financing.
- Delicate negotiation: Setting a fair price whilst respecting the acquirers' payment capacity requires tact and objectivity.
- Relational risks: Tensions can arise within the management team or between seller and acquirers.
- Emotional burden: Negotiating with your own colleagues complicates the necessary distance.
- Objective valuation: An independent valuation is essential to avoid conflicts.
Use the Leez valuation tool for an initial estimate.
The key stages of a successful MBO
A successful management buy-out follows a structured process in several phases. Each stage requires rigour and preparation.
The following sections detail the four essential phases: assessing the executives' interest, objectively valuing the company, structuring the financing, and legally formalising the transaction.
This methodical approach maximises your chances of success and limits the risks of conflict or financial failure.
Assessing the executives' interest and capacity
First stage: identify executives potentially interested in a management succession.
Assess their genuine motivation and strategic vision for the company. Simple interest is not enough: they must demonstrate entrepreneurial commitment.
Verify their initial financial capacity: what personal contribution can they mobilise? Even if modest, this contribution demonstrates their involvement.
Also analyse their management skills. Being a good operational manager does not guarantee success as an owner-manager. The entrepreneurial dimension is different.
Valuing the company objectively
An independent valuation is crucial to avoid tensions and misunderstandings. The price should reflect neither favouritism nor undervaluation.
In Switzerland, common methods for SMEs include the practitioners' method and EBITDA multiples. These approaches provide a realistic range.
Engaging an external expert brings credibility and objectivity. Your executives will more readily accept a price validated by a third party.
Consult our detailed article on business valuation in Switzerland or contact an expert via our partner network.
Structuring the financing
Financing an MBO generally combines several sources:
- Personal contribution: Executives mobilise their savings (typically 20-30% of the price).
- Bank credit: Swiss banks are well acquainted with LBO (Leveraged Buy-Out) structures and finance 40-50% of the price.
- Seller financing: You spread part of the payment over 3-7 years, facilitating the transaction.
- Earn-out: A portion of the price depends on future performance.
This combination makes acquisitions possible that would otherwise be inaccessible. For more details, read our guide on acquisition with no down payment.
Legally formalising the transaction
Legal support is essential to secure a Swiss MBO.
Essential documents include the sale agreement, shareholders' agreement (if multiple acquirers), warranties given and received, and non-compete clauses.
Tax aspects deserve particular attention: optimising the transaction can generate substantial savings for all parties.
Engage lawyers and fiduciaries specialising in business succession. Our expert network brings together professionals experienced in M&A.
Specific legal and tax aspects in Switzerland
The Swiss legal framework imposes certain rules during a management buy-out.
Taxation of capital gains depends on the seller's status: private assets (possible exemption) or business assets (full taxation). This distinction is decisive.
Tax optimisation often involves selling shares rather than assets. The consequences differ significantly.
Legal obligations include respecting existing employment contracts and protecting employees during the transfer.
The complexity of these aspects justifies the involvement of a specialised tax adviser. The experts in the Leez network master these issues specific to Switzerland.
Case study: example of a successful MBO
Consider the example of a Vaud SME with 18 employees, active in IT services. The founder, aged 62, wished to retire with no interested heir.
Two key executives, technical director and sales manager, expressed their interest in a management succession.
Valuation established at 1.5 million CHF. Financial structure: 450,000 CHF personal contribution (30%), 600,000 CHF bank credit (40%), and 450,000 CHF seller financing over 5 years (30%).
The seller supported the acquirers for 9 months. Three years later, the company maintains its activity and has even recruited 3 additional employees.
How Leez facilitates your MBO
Even with internal acquirers, Leez supports you in your MBO.
Our valuation tool gives you an initial value estimate, an objective basis for your discussions.
The platform helps you structure your presentation file, useful for banks and financial partners.
You gain access to our partner expert network: lawyers, fiduciaries, M&A advisers specialising in succession.
The process remains confidential and secure. Leez provides the infrastructure and contacts, without imposing a consultant.
For a complete overview of the process, consult our guide to selling your business.
The Management Buy-Out represents an often underestimated succession option in Switzerland. By selling to your executives, you ensure business continuity, preserve its identity and facilitate operational transition. This solution presents real advantages: mutual trust, in-depth knowledge of the business, and maintenance of company culture.
Challenges nevertheless exist: financing to be structured, objective valuation to be established, and legal-tax aspects to be mastered. A successful MBO requires rigorous preparation, honest assessment of your executives' capabilities, and support from specialised experts.
Leez facilitates your approach by offering you the necessary visibility and access to a network of qualified partners. Would you like to explore this option? Estimate your company's value free of charge to lay the foundations for a constructive discussion with your executives, or consult our expert network to support you in this strategic succession.
