A management buy-in or MBI as they are often referred to, occurs when a manager or a management team from outside the company raises the necessary finance, buys it, and becomes the company’s new management. It is often considered as an alternative to a Management Buy Out (MBO) where the incumbent management have insufficient experience or who are unable to buy the business. A hybrid of an MBI and MBO is often referred to as a BIMBO (Buy-In Management Buy Out) where both internal and external management combine and pool their experience and resources to buy the business.
An MBO team may be frustrated in their attempts to buy the business due to having to compete with a trade sale buyer who would offer a higher price. The more successful they have been in developing the business, the higher the price they will have to pay for it.
There are disadvantages of an MBI as against an MBO as the MBI team would not have the same level of detailed knowledge of the target’s financial position, its managerial strengths and weaknesses and the risks of any claims or litigation. The risks are mitigated however where the MBI is backed by an existing investor. A venture capital investor is likely to have more detailed knowledge of the business than any other shareholder, however this can lead to conflict of interest.
We can provide a comprehensive service to include finding a target company (if necessary); advising on feasibility; preparing your business plan; sourcing the finance and negotiating the deal.
Finding the Team
A critical factor in any successful MBI is a team with a good mixture of skills, experience and understanding of a business’ operations and the key fundamentals that have contributed to its historic performance.
Funders pay particular attention to the make up of an MBI team to confirm they have the right level of commitment and a desire and vision to develop the business. Involvement in running a business prior to the buy in can often be beneficial. As mentioned above, VC investors have a panel of experienced MBI candidates, who may have previously owned and run businesses and with the requisite experience.
A team that has some personal funds or assets to help fund a deal will also be of significant benefit helping the structure of a deal, whilst providing funders with confidence that the team are willing to back themselves.
Finding the Business
It is essential that the MBI team find the right business and they may have had an eye on the target for a while as mentioned above. Other than a pre-selected target, the means of identifying the business include teaming up with a VC type investor/backer who will know of targets or searching the marketplace for suitable investments. We have extensive networks designed to pinpoint opportunities by way of searching within preset investment criteria and carried out by “investments required” or “acquisitions sought”.
Finding the Funding
MBIs are traditionally more difficult to finance than MBOs due to the higher levels of risk. Transaction costs may also be higher due to the increased levels of due diligence required.
There are however a variety of sources available for MBI funding ranging from private equity to debt and asset finance. Management teams will invariably be required to invest some personal monies in the deal but this may not be vast amounts. It is essential that the Buy-In team can demonstrate that they have taken the best available steps to ensure they really know what is going on in the target especially if the price is full and there are substantial loans to be serviced. We have excellent relationships and regular contact with the leading UK private equity houses and providers of debt and asset finance. We are able to assist and guide the management team on the production of an accurate business plan safeguarding the investment.