This 25-mark optional question asked candidates to consider a management buyout (MBO) and look at the expected performance of the company in terms of whether it would be able to meet its restrictive covenants or not, and whether or not the MBO would be beneficial for the two groups of equity holders: the original managers and the venture capitalist.

In part (a), candidates were asked to distinguish between an MBO and a management buy-in (MBI). And then discuss the benefits and drawbacks of a disposal through an MBO instead of an MBI. Candidates who had studied and prepared this area gained high marks.

However, many answers confused the two and some just explained what an MBO was only. The question asked for relative benefits and drawbacks, but only a few responses did this well enough to gain all the marks.