Management Buy-Out/Management Buy-In

Management Buy-Ins (MBI) and Management Buy-Outs (MBO) both involve the purchase of an existing company by a management team who propose to operate the business post-completion. The difference between them lies in the status of the buyer prior to the purchase taking place.

• Management Buy-Out
  An MBO involves a purchase by individuals who already work for the company; this is typically the existing management team joining together in order to facilitate the purchase. This has clear advantages, as the new management team are already familiar with the company, therefore eliminating a learning curve and significantly reducing the transition period following the departure of the existing owner. An MBO is a common exit strategy for large corporations wishing to shed divisions that are no longer central to their future business plans. It is also a common tactic employed when the owner(s) of a business seeks retirement. A possible pitfall with an MBO is that the existing management team might lack the ‘fresh ideas’ that new management could bring.
• Management Buy-In
  This involves a purchase from outside of the company, so it will be a completely new team taking on the ownership and management of the business. An MBI is seen as a riskier proposition by funders than an MBO as there will be a learning curve for the incoming management team to negotiate when they take control of the business. This perceived risk could affect their ability to secure the funding needed to facilitate such a purchase.
• Management Buy-Out/Buy-In
  This is a combination of the two strategies and potentially addresses some of the possible weaknesses of either an MBO or MBI. If the proposed management team does not possess all the strengths and attributes needed, perhaps as a result of the loss of the exiting shareholder(s), then a Buy-In Management Buy-Out (BIMBO) might be a suitable alternative, with incoming members of the management team ensuring a more rounded team is in place. This approach is often more attractive to funders.

Buy-side advice

BTG Advisory’s corporate finance team have extensive experience of advising and negotiating on behalf of both MBI and MBO teams across a wide array of sectors and fully understand the complexities and challenges, as well as the benefits, of these transactions. The team can help manage the whole process, from the initial approach to existing owners, through price negotiations and fundraising, to agreement of terms and final completion.

Sell-side advice

For business owners who wish to sell and exit their business, the remaining management team may be waiting in the wings to purchase the business. In this instance, an MBO might be an appropriate exit route for a vendor to take. There are two forms of MBOs; one is undertaken by the management team who approach the owners. However, more proactive owners might wish to drive the process using a Vendor Initiated Management Buy-Out (VIMBO).

By initiating the transaction themselves, the current owner can help to ensure the deal is done on their terms. However, as with any deal of this magnitude, it is vital that the seller understands the intricacies of this selling option before an official approach is made to a potential buyer. In particular, it is critically important that the existing working relationships with all parties involved are maintained on a cordial basis and, therefore, the involvement of an experienced and sympathetic advisor in all negotiations is vital.