Do I want to do an MBO, an MBI, a BIMBO or a VIMBO?

  • 2/19/2016
  • Keiran Taylor

The world of corporate finance can be a minefield of acronyms, here we try to dispel some of the misunderstandings, misconceptions and mystique around these valuable exit planning strategies.

Management Buy-out. This is the simplest form of these business exit strategies, the incumbent management team, backed by years of experience running the business, will look to buy the business in which they are employed from the shareholders. It is common for a comparatively small stake to be required from the management team, with the remaining funding coming from bank debt, venture capital or private equity, and fund left behind by the vendor.

Management Buy-in. This exit strategy involves selling the business to an outside management team, often backed by bank debt and sometimes private equity, who would replace the incumbent owner management. Often the vendor needs to leave behind a proportion of the consideration, this type of strategy can create a challenge to find the right management team.

Buy-in/Management Buy-out. This accounts for a co-operative MBI and MBO, where by the current management team find difficulty in securing finance to fund and MBO due to gaps in the skill set of the team, leading to funders having concerns over the risks to success. The solution? Fill the gaps with experienced managers with an appetite to invest some equity and win the backing of the funders. This can sometimes take the form, for example, of a business owner with technical skills in a particular field, looking to sell out to the management team who would require a replacement, experienced director with equivalent technical skills to the exiting owner, willing to invest in a buy-out.

Vender-initiated Management Buy-out. As the name suggests, this is very similar to an MBO but instead of the transaction being driven by the management team, the current owner looks to the management team as a source of exit capital. As a funder will look to the management team to commit a portion of the deal as their equity, this can sometimes be a more challenging exit plan for the vendor and often will be required to support the MBO's funding of the purchase.

For further information or to discuss any questions you have around your own exit planning strategies, please contact Penrose Business Brokers for a FREE no obligation consultation.

Keiran Taylor.
Senior Lead Advisor
Penrose Business Brokers