Non-Sponsored Buyout Financing (Non-Sponsored MBO)


Non-Sponsored Buyout Experience:  Lantern Capital Advisors experience encompasses helping managers and minority shareholders execute their non-sponsored buyout (MBO) that realize control of the business while allowing them to create significant value.

However, for financially healthy businesses, there is an alternative management buyout approach that utilizes the same financing techniques but MANAGEMENT gains operating control.  In fact, management can end up owning 85% to 100% of the Company depending on the situation.

These types of management buyouts are called non-sponsored management buyouts, and it's the type of management buyout transaction that Lantern Capital Advisors specializes in helping owners and managers execute.

Key Requirements of Non-Sponsored Management Buyouts (MBO)

The process of completing a non-sponsored management buyout (non-sponsored MBO) is pretty much like any other kind of business financing.  The key requirements for a successful non-sponsored management buyout are pretty much like any other business financing and include a quality team, proactive management, and agreement on purchase price.

Quality Company and Team

An ideal situation is for the buyer(s) to already be running a profitable business.  Common situations would be a CEO that buys a company from a passive owner or a limited partner buying out his or her majority partner(s).  The key is for would-be lenders or investors to have confidence in the management team once the owner walks out the door.

Proactive Management

Many prospective buyers never ask for the opportunity to buy their owner’s business or buyout a partner. Many are reluctant because they are unfamiliar with the process or believe they can’t qualify for financing. Interestingly, it’s the financials of the company, not the individuals that drive the ability to perform a non-sponsored buyout.  The best way to start such discussions is to informally ask if the owner is open to discussing it. Once you get a ‘yes’ (even a tentative ‘yes’), more homework can begin.

Agreement on Purchase Price

Agreeing on a purchase price can be as complicated or as simple as both parties want to make it. Still, most small to mid-sized companies are valued at a multiple of between 4 to 7 times cash flow (commonly called ‘EBITDA’ – for earnings before interest, taxes, depreciation and amortization). As an example a company that makes $2 million a year EBTIDA could be worth $10 million at a 5 multiple (5X). Knowing this, the most direct way to get a price is to ask the owner their price. A purchase price within a 4 to 7 range of EBITDA will probably work. In fact, our experience has shown buyers will end up owning more through a non-sponsored buyout than a sponsored buyout even if they have to overpay some in order to buy the company.

Understanding of Management Buyout Financing Options

Most companies know they can get debt from banks and equity from buyout funds. However, a there are a variety of lesser known funding sources such as subordinated debt lenders, insurance companies, corporate development companies, hedge funds and other specialty lenders that will lend beyond a traditional bank. These are the same institutions that buyout firms use to fund their acquisitions. Depending on the economic climate, many of these institutions will lend up to and sometimes over 4 times cash flow (EBITDA).

Creative Buyout Math: Putting It All Together

Management Buyout Financing:

Should the management buyout financing fall short of what is desired by the owner, management and the owner can still execute the transaction, but the owner may retain a portion of the business until their “equity” is repaid.  Following the math here, if a buyer purchases a company for $10Million (5X EBITDA) and can borrow $8Million (4X EBITDA) they end up owning 80% of the Company, and the Seller would retain a portion of the company, but their piece would become “the equity”.  Owners are satisfied because they get a majority of their cash up front with no recourse. Buyers like it because they get control either upon the initial buyout, or as the equity is paid out to the seller over time. The Seller can be repaid over a period of time (decreasing their ownership over time). Also, most of these specialty lenders do not require personal guarantees limiting the downside risk to new owners. Over time the owner’s remaining interest can be bought out, often at a higher valuation.  Most important, the value to all parties is directly driven by the buyer’s performance rather than financial engineering by outside investors.


“I spoke with multiple financial firms about the possibility of conducting a management buyout of a particular division.  Most of them seemed more interested in developing a long term relationship with the parent company than they were in securing the best possible deal for me.  I was then referred to Lantern Capital Advisors and things just clicked.  They listened carefully to my vision for the business and patiently explained every step of the management buyout process.  They met every expedited timeline and used their extensive network to find me the best possible investment group.  I don’t know that a deal would have been completed without their guidance.  I would recommend Lantern Capital Advisors to anyone contemplating a similar transaction.” JR, CEO Consumer Products Company

“I spent years doing research and speaking to advisors, investors, and banks.  I cold find no support for the find of management buyout transaction I wanted to do and believed could be done.  That is, until I stumbled upon Lantern Capital Advisors.  Just one phone call to Lantern and I heard the words, “it absolutely can be done!”  Lantern then helped me make it happen.  I will be forever grateful to Lantern Capital Advisors for their counsel, expertise, and hard work in leading us to our goal.” DF, CFO, Full Service Call Center