Look beyond traditional private equity firms to finance your management buyout:  The conventional way of financing a management buyout is with a private equity fund. The problem with that is that most private equity funds often end up owning 90% of the equity in the business. To get more equity, managers need to look at other sources of financing such as specialty debt providers. Specialty debt providers can generally provide more capital than traditional banks but at a higher rate. They also often offer attractive terms like customized repayment schedules and limited or no personal guarantees. Some of these groups may also look to take part of the equity in the company in order to meet their target investment returns but their ownership requirements are usually much less than what private equity groups would require. To give you an example, we recently helped a manager finance the buyout of his division for $7.5 million. The manager ending up owning 27% of the business at the closing. However if the manager hits his three-year financial projections, that ownership will increase to 43%. In addition, the selling owner retained 12% of the ownership thus giving the manager and the selling owner the opportunity to collectively own 55% of the combined business and control its future if they hit their numbers.(For a more detailed discussion about financing options for buyouts, see our other related white paper, “Creative Management Buyout Strategies.”)