The CEO was preparing the sale of the company to a competitor. In the end he bought it with his team for PLN 61.1 million

For six weeks the CEO prepared the documents that were going to cost him his job.

The owner had decided to sell the company to a competitor for PLN 56.4 million. He asked the CEO to prepare, on his behalf, everything the buyer needed for its due diligence on the company. The CEO gathered five years of financial results and the contracts with the largest customers. He even added a development plan he had written himself a year earlier. He worked on it in the evenings, because during the day he was running the company. He knew that once the competitor took over, the company’s board would no longer be needed.

On Friday, after five in the afternoon, he came to see me. Before he took off his coat, he made it clear that the owner did not know about our meeting and must not find out about it for now. Only then did he say why he had come. He wanted to buy the company himself, together with three of its directors.

He had been running the company for six years. In that time EBITDA had grown from PLN 5.2 million to PLN 9.4 million. The owner was 67 and had two adult children. Neither of them wanted to take over the business. The CEO feared only one thing: that the proposal itself would sound like disloyalty.

I have changed the details so that neither the company nor the parties can be identified.

Why a management buyout arouses suspicion in Poland

A management buyout (MBO) is the purchase of a company by the people who run it. The managers usually put in a small part of the money. The rest comes from a bank, a private debt fund, that is, a fund that lends money to companies outside the banking system, and a private equity fund, and often also from the seller himself, who defers part of the price.

There are few such deals in Poland. Nobody counts them separately anyway, because Polish reports on mergers and acquisitions do not break out management buyouts. Avallon, one of the few funds that specialize in them, has made about a hundred senior managers into owners over more than 25 years. That is what its founder, Tomasz Stamirowski, said in an interview with Forbes in June 2026.

There is no shortage of sellers. In the second quarter of 2026, private investors were the sellers in 68% of deals on the Polish market (Fordata and Navigator Capital). According to a 2024 PwC survey, 53% of Polish family businesses are still in the hands of the first generation, compared with 32% globally. That generation is nearing retirement, and there are not enough successors. In a 2017 survey, only 8.1% of students from business-owning families said they wanted to take over their parents’ company.

In my view, there are few buyouts for a different reason. For years, Polish private companies were run by their founders themselves. They hired outside managers rarely and reluctantly. That is changing, especially among younger founders. They hire people who gained experience in mature, often foreign companies, and count on them to help build value faster. Owners still rarely treat such managers as partners. A manager who proposes buying the company looks like someone who wants to profit at the owner’s expense.

Managers feel awkward in this situation too. In the same interview, Stamirowski says that this is why the fund leads the price discussion with the owner.

Mature markets see it differently. A manager who has spent years building the company’s value can, at some point, help the owner turn that value into cash. He knows the company, does not need lengthy due diligence and will preserve what the owner has built. In several European countries, a management buyout is one of the routes to succession in family businesses (Scholes et al., 2008).

The manager becomes a shareholder

First, the manager puts in his own money. Stamirowski asks any manager who tries to persuade him to invest how much of his own money he will put into the deal. If the manager is ready to invest even two or three years’ salary, he says, the conversation looks different. According to Avallon, in a PLN 100 million deal, PLN 2–3 million is enough from the managers. In the case described here, four managers put in PLN 2.4 million against a price of PLN 61.1 million, or 3.9% of the price.

The manager now answers to the bank and the fund, which have taken on the risk and expect their capital back with a return within a set time. Companies that private equity funds sold in Europe in 2024 had been in their portfolios for a median of 5.7 years, compared with 4.7 years in 2020 (EY). That is roughly how long the manager has to deliver the plan. In due course the fund will sell the company to a trade buyer or to another fund. Two weeks ago I wrote about how such an exit works, in the article on drag-along. The bank monitors the plan every quarter through covenants, that is, financial ratios written into the loan agreement, such as a ceiling on the ratio of debt to EBITDA.

A manager who shares in the results makes bolder decisions, to build value faster for himself and for his financial partners. At the same time he counts every expense, because free cash pays down the debt. A classic study of 76 large management buyouts in the United States found higher operating income, lower capital expenditure and higher cash flows in the three years after the deal. The author attributed the change to better incentives for managers (Kaplan, 1989).

Finally, the manager takes on a liability he has not known before. He warrants to the financiers that he prepared the business plan carefully and on reliable data. He signs provisions on what will happen to his shares if he leaves early. A bad leaver clause provides that anyone who leaves early through his own fault sells his shares back at the lower of two prices: the price he paid or the market price. Anyone who leaves through no fault of his own, for example because of illness, usually receives the market price.

In return, the managers get a share in the growth in value. The fund puts in most of its money as shareholder loans and preference shares. The team then takes up a large part of the ordinary shares for a relatively small amount. The market calls this sweet equity. If the plan succeeds, it is this part that gives them the largest gain.

The owner first, then the bank

The CEO in this story wanted to ask the banks first whether they would finance such a buyout at all, and only then go to the owner. I advised him against it. At Capital One Advisers we start every management buyout with a conversation with the owner.

A board member whose interest conflicts with the company’s interest should disclose the conflict and refrain from taking part in deciding such matters. He must also remain loyal to the company and may not disclose its secrets, even after his term of office has ended. A credit, loan or guarantee agreement, or a similar agreement, that the company would enter into with a board member or for his benefit requires the consent of the shareholders’ meeting. That is what the Commercial Companies Code provides. The bank and the fund will not assess a buyout without the company’s numbers. Showing them those numbers without the owner’s knowledge exposes the manager to the charge of disloyalty that he most wants to avoid.

That is why the first conversation is with the owner. Ideally, the managers come with a ready idea of how to test the price, and with a request for written consent to talk to financiers under a confidentiality agreement. The team should also know who will pay the lawyers and advisers if the financing falls through.

The CEO went to the owner on Monday. The first question was: how long have you been planning this? The second came a week later: how much can you pay?

Three calculations before the offer

In practice, the managers’ offer consists of three models that must agree with one another.

The first is a forecast in three scenarios: base, upside and downside. In the downside scenario, EBITDA fell by 20%, from PLN 9.4 million to PLN 7.5 million. Debt to EBITDA then rose from 3.5 to 4.4, while the bank allowed 4.5. The covenant would have been breached only if EBITDA fell by 22%, to PLN 7.3 million. In the model, the structure came through the weakest year with a margin of two percentage points. A study of failures among UK buyouts showed that the level of debt alone did not distinguish the companies that failed from those that survived (Wilson and Wright, 2013). The bank also checks whether cash from operations covers interest and principal repayments.

The second model is financing in several layers. The offer came to PLN 61.1 million, or 6.5 times EBITDA. The competitor was offering PLN 56.4 million, or 6.0 times. The bank provided a PLN 23.5 million loan, the private debt fund PLN 9.4 million and the private equity fund PLN 21.2 million of equity. The four managers put in PLN 2.4 million between them. The owner lent the remaining PLN 4.6 million to the buyers for four years. Bank and private debt covered 54% of the price. At the start of 2025, PwC estimated the private debt market in Poland at no more than PLN 4 billion, so the choice of partners is narrow.

The model must take taxes into account. The Corporate Income Tax Act does not allow interest on debt taken on to buy a company to reduce the acquired company’s tax. This also applies after it has merged with the acquiring company. A plan that assumes such a tax effect overstates the cash available to repay the debt.

The third model is the offer to the owner. The managers proposed PLN 61.1 million, but at closing the owner would receive PLN 56.5 million, almost the same as from the competitor. He was to receive the rest within four years, with interest. A seller loan is usually repaid after the banks and the debt fund, so the owner left that PLN 4.6 million, or 7.5% of the price, exposed to the risk of the plan. In return he got something the competitor did not offer: a company that would carry on under the same name with the same people, and six months’ work as an adviser to the new board.

On top of that came a market test. For eight weeks the owner could keep talking to the competitor and compare the two offers. With the managers’ offer in hand, he could ask the competitor for more without the risk of being left without a buyer. The competitor did not raise its price. That is how the owner checked for himself what the company was worth to an outsider.

When the owner is right

The owner’s suspicion is justified. The manager knows more about the company than he does. In a study of 117 teams that took over family businesses in several European countries, managers with better access to information influenced the course of the negotiations and who benefited from the price. Where the managers controlled the information, the price was less often agreed by both sides (Scholes et al., 2008).

Kaplan reached a different conclusion. In his sample, the gains from buyouts came from better incentives, and the study did not confirm that managers had exploited inside information. Kaplan, however, studied large US listed companies, far removed from the realities of a Polish family business.

For the manager, the conclusion is practical. An offer that provides for no check on the price confirms the owner’s worst fears. A market test, an independent valuation or a share for the owner in future growth removes from the discussion the charge the manager fears most. According to the same European study, the managers’ information advantage was smaller where the owner and the managers planned the succession together.

The same advantage works in the owner’s favor in the sale agreement. A lawyer at Eversheds Sutherland told The Irish Times in 2023 that an agreement to sell a company to its management usually contains few seller’s representations and warranties, because the managers should know the business better than the seller does. Last week I showed how much such warranties can cost a seller who sells his company to an outsider.

An adviser who runs the numbers for three parties

The owner wants a price he will not regret and certainty of payment. The bank and the fund need a plan that will survive a weaker year and let them exit on time. The managers want a stake that rewards them for their risk.

The adviser represents the managers, but the model has to show what each party gains and what it risks. At Capital One Advisers we prepare the model in three scenarios, the memorandum for the financiers and the structure of the offer at the same time. With every change, we check its effect on the owner, the financiers and the managers. In the case described here, deferring PLN 4.6 million of the price lifted the managers’ offer PLN 4.7 million above the competitor’s, with almost the same amount paid at closing.

The manager’s personal wealth

The CEO put PLN 1.2 million into the buyout, almost everything he had saved over six years. The three directors together added the same amount again. The owner accepted their offer in the ninth week.

Funds want a contribution that shows belief in the plan, and they are right, because a manager with none of his own money in the company thinks like an employee. A study of 491 UK secondary management buyouts showed, however, that a high management stake in the equity was associated with weaker profitability and productivity (Zhou et al., 2014). The study measured the managers’ share of the company’s equity. It did not examine what share of their personal wealth the contribution represented.

In my view, it is this second measure that drives decisions. A manager who has staked almost all his wealth on a single bet decides differently from one who stands to lose part of it. Each manager sets that limit himself before signing the investment agreement. In the case described here, the CEO set it at almost all of his savings.

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