What is a Management and Employee Purchase (MEBO)?
A Management and Employee Purchase (MEBO) is a corporate restructuring initiative that involves managerial (MBO) and non-managerial (EBO) employees buying a company to concentrate ownership in a small group from a widely dispersed group of shareholders.
- A Management and Employee Purchase (MEBO) occurs when both management and selected employees come together to take over an existing business.
- MEBOs can be used to convert a public company to a private one or as an exit strategy for a new company.
- Because management and employees often have competing interests or preferences, MEBOs can be difficult to organize and complex to structure.
Understanding of employee procurement and management
MEBOs are generally used to privatize a publicly traded company, but can also be used as an exit strategy for venture capitalists or other shareholders of an already private company. MEBOs are often seen as a way to bring greater efficiency to a company’s production because they can provide additional job security for employees, motivating them to make a stronger effort to improve the profitability of the company.
MEBOs can be used by corporations that wish to continue the sale of divisions that are not part of their core business, or by private businesses where the owners wish to retire. An internal management team and employees will pool their resources to acquire a business that they operate or manage. Financing often comes from a combination of equity and personal savings, seller financing, or private equity financing.
This type of purchase is made by management teams and employees who want to benefit more directly from the growth and future direction of the company than they can alone as employees.
Although the potential to reap the rewards of ownership is significant, employees and managers must make the transition from being employees to owners, which requires a more entrepreneurial mindset. At the same time, management and workers may have different interests or incentives, making a MEBO less common than an MBO or an EBO. As a result, MEBOs may not always be a smooth transition or may fall apart before completion.
MBO vs. EBO
A MEBO is essentially a management purchase (MBO) combined with an employee purchase (EBO). A management purchase (MBO) is a transaction in which the management team of a company purchases the assets and operations of the company it manages. While management reaps the rewards of ownership after an MBO, they have to transition from being employees to owners, which comes with significantly more liability and greater potential for loss.
An Employee Purchase (EBO) is a restructuring strategy in which employees purchase a majority stake in their own company. This type of restructuring is a takeover of the company by its workers. For small businesses, the purchase of an employee often focuses on the sale of the company’s assets, while for larger companies, the purchase could be for a subsidiary or division of the business. In any example, acquisitions are most often used when companies are in financial difficulty.