MBO or MBI: When Management — or an External Leader — Takes Over the Business

Note: This article describes Danish company law considerations specifically for self-financing rules in an MBO.

If you don't have an obvious successor in the family, a sale to an external business or investor isn't the only route. Two related models — MBO and MBI — instead let a leader take over the business, either from the existing management or from outside.

What is a management buyout (MBO)?

In a management buyout, the business's existing management team takes over ownership — wholly or partly. The advantage for you as seller is that management already knows the business, its processes and its customers intimately, which typically makes the transition more stable than a sale to an entirely external party. MBOs are often financed through a combination of the buyers' own equity, external bank financing, and possibly seller financing from you. If the business's own funds or assets are used as security for the purchase, the financing needs to be structured in accordance with the Danish Companies Act's rules on financial assistance — this requires, among other things, that the board conducts a credit assessment, and that the amount doesn't exceed what could have been distributed as dividends.

What is a management buy-in (MBI)?

In a management buy-in, it's instead an external leader — someone not previously part of the business — who buys in and takes over operations. The model is particularly relevant if the business needs new competencies, fresh energy, or access to new markets that the existing management can't provide themselves.

When does an MBO make the most sense?

• You have a strong, experienced management team already running the business day to day.
• You want a smooth transition with minimal disruption for customers and employees.
• Management has themselves expressed interest in taking over, but lacks the full capital to do it alone.

When does an MBI make more sense?

• The business lacks competencies or direction the current management can't deliver.
• You want a new, external leader with experience from another business or industry.
• There's no natural successor among the current employees.

What are the typical challenges?

In both models, financing is often the biggest challenge — neither a management team nor a single external leader typically has the same capital strength as a business or private equity fund. That's why seller financing and bank financing are common financing forms in MBO and MBI deals. It can also be a challenge if several management members need to agree on a shared ownership structure afterward — a shareholders' agreement (currently in Danish) isn't just a good idea here, but a genuine necessity.

Is the model particularly widespread in Denmark?

Yes, particularly among small and medium-sized, owner-managed businesses without an obvious successor in the family. This makes MBO and MBI a relevant alternative to both an ordinary generational transfer and a sale to an entirely external business or investor.

Frequently asked questions

What's the key difference between MBO and MBI?

Whether the leader taking over comes from inside (MBO — the existing management) or outside (MBI — an external leader not previously part of the business).

Do I as seller need to finance part of the deal myself in an MBO?

Often, yes, wholly or partly — management teams rarely have enough capital to finance the entire purchase price themselves, so seller financing combined with a bank loan is common.

Is MBO or MBI relevant if I don't have a successor in the family?

Yes, that's exactly the situation where these models most often become relevant — as an alternative to either a generational transfer or a sale to an entirely external party.

Considering a management takeover as an alternative to an external sale? Book a no-obligation call if you'd like sparring on what best fits your situation.