Management Buy-outs (MBO) and Management Buy-ins (MBI)
A management buy-out is the purchase of a business by its existing management team. By contrast a management buy-in is the purchase of a business by an incoming management team. The dynamic of each type of deal is different. A management buy-out team will typically have extensive experience of the business being acquired. A management buy-in team will usually have sector experience but little or no experience of the specific business.
The Challenges of a Management buy-out
Every deal is different but most management buy-outs will have common challenges. Management are often busy in their day jobs and so will need to depend upon sound professional advice to take as much strain as possible out of the transaction process. Managers will have an existing relationship with the seller and with each other and this may make difficult commercial conversations all the more awkward. Having advisers that can understand not only the dynamic of the transaction but also the personalities and psychology of those involved is essential.
The Challenges of a Management buy-in
Given the lack of prior knowledge a management buy-in team will conduct more thorough due diligence and expect robust warranty and indemnity protection. A management buy-in team may be viewed with some scepticism by the existing employees and will not typically have the level of financial resource of a trade purchaser.
Funding a Management buy-out and buy-in
The management buy-out of significant businesses with experienced management teams will often be supported by private equity funding, in which case the private equity house will usually lead the transaction, but the management team will need independent advice [link]
Smaller buy-outs and buy-ins will tend to be funded against the assets of the business with managers being expected to contribute some of the purchase price personally so that they carry some personal financial risk.
Vendor Assisted Management Buy Outs (VAMBO)
Since the financial crisis there is less appetite among institutions for certain types of funding and it is more common for sellers to have to support transactions through deferring payment of some of the purchase price.
Vendor Initiated Management Buy Outs (VIMBO)
Some buy–outs will be initiated by the seller where the seller may look to package a funding arrangement to support the management team.
We have extensive experience of negotiating and concluding transactions of all these types, both large and small. We can help manage expectations and introduce business owners or management teams to potential funders.