In the context of LBO investments, why might a management buyout (MBO) occur?

A management buyout (MBO) often occurs because the management team believes that they can unlock greater value within the company compared to its current performance. In many cases, management is intimately familiar with the operations, culture, and potential growth opportunities of the business, which positions them uniquely to implement changes that can enhance efficiency, reduce costs, and increase revenues.

By acquiring the company, the management team is motivated to improve operations and create value since their financial gains are directly tied to the performance of the business post-buyout. This alignment of incentives often results in a focus on long-term strategic goals rather than short-term financial performance, which can lead to sustainable growth.

The other scenarios mentioned do not align with the typical motivations behind an MBO. Shareholders being fully satisfied would likely deter any buyout consideration since there would be no perceived need for change. Similarly, if management sought to divest from their role, it contradicts the very essence of a buyout where management is taking control to drive improvements. Lastly, external investors preferring oversight might lead to different forms of ownership and governance structures, rather than a buyout led by existing management.