Capital use · Partner buyout & MBO
The partner wants out. The bank will lend 60% of the price. Here is the other 40%.
- Buying out a partner
- Managers buying in
- Behind bank + vendor note
- $50K–$5M per company
A partner buyout or management buyout is usually financed in layers: a bank loan for 50–65% of the price, a vendor note from the seller for 10–25%, and equity for the rest. Blue Ring Venture Capital members provide that equity layer — $50K–$5M per company, minority or majority — to established Canadian $1M–$25M-revenue companies, and one member joins the board.
A worked example: buying out a 50% partner
A $4M-revenue mechanical contractor with $600K of normalized EBITDA. The retiring partner's half is valued at $1.2M (4× EBITDA, then 50%). Illustrative only.
| Layer | Amount | Who | Terms (typical) |
|---|---|---|---|
| Senior loan | $650K | Credit union or bank; CSBFP | 5–7 years, secured, personal guarantee from the continuing owner |
| Vendor note | $250K | The retiring partner | 3–5 years, subordinated, interest-only for year one |
| Member equity | $300K | Blue Ring Venture Capital members | Preferred shares, 8–10% dividend from year two, buy-back in years 5–7; roughly 12% of the company |
| Result | Continuing owner holds ~88% | Retiring partner is paid; company keeps its bonding line; an operator joins the board |
Every number here is illustrative and depends on the company, the lender and the seller. Not an offer.
Management buy-ins
The managers who run it should be able to own it.
A general manager and an estimator who have run the company for eight years usually have the trust of the customers and the crew, and rarely have $400K between them. Owners in that position either sell to a stranger or keep working past the point they wanted to.
A staged MBO solves it: managers buy a first tranche with what they can raise, members provide an equity tranche, the owner takes a vendor note for part, and a purchase plan moves the remaining shares to the managers over three to seven years from profits. Members sit on the board through the transition, which is often the difference between a plan and a handover.
- Managers commit real money, even if small — it changes behaviour
- Owner's vendor note is subordinated but secured on the shares
- Members' buy-back can be funded by the same purchase plan
- A BDC Growth & Transition facility can sit in the same stack when the size warrants it
Members will ask
- Can the company service all three layers at 80% of current EBITDA?
- Which customers and suppliers are loyal to the departing partner?
- Is there a shareholders' agreement now, and what does it say about valuation?
- Who is the second layer under the managers?
Buyout questions
Can the members buy the departing partner's shares directly?
Sometimes that is the cleanest route — members buy a portion of the retiring partner's stake and the company or the continuing owner buys the rest. More often the company redeems the shares and members subscribe for new preferred shares, which keeps the tax position clearer. Your accountant and lawyer decide.
What if the partners are not on speaking terms?
Common. Members have been through partner disputes as operators. The shareholders' agreement and a valuation both sides accept come first; capital comes second. A neutral chartered business valuator helps.
How long does a buyout take?
With a valuation in hand and a willing lender, 8–14 weeks. Without them, add the time it takes to get both.
Will the bank still lend with an outside investor on the cap table?
Usually more readily — the equity layer improves the debt-service coverage and the balance sheet. Lenders across Southwestern Ontario are used to seeing BDC or private equity capital sitting behind a buyout loan.
Talk to people who have done this
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Written by The Blue Ring Venture Capital team. Last reviewed .
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