Management buy out and buy ins
A management buy out (“MBO”) occurs when a business or company is acquired by its management team. A variation on this is a management buy in (“MBI”) where the management team comprises managers or a management group from outside the company or business being acquired. A mixture of the two, when both incoming and existing management acquire the business or company, is known as a BIMBO (buy-in management buy out).
At BBS Law, we have considerable experience of acting on these transactions, both for the management team and the seller.
There is flexibility in how MBOs/MBIs are structured and we would strongly recommend that experienced legal advisers are appointed early on in the process. At BBS Law, this will enable us to work in conjunction with your tax advisers to help to structure the transaction.
Typically, the management team will establish a new company to acquire the business (“Newco”) with each member of the management team being a shareholder of Newco.
Often Newco will be funded by private equity finance or bank debt or a combination of both. Sometimes the seller will assist with the funding of the acquisition by leaving part of the purchase price outstanding on deferred terms.
Accordingly, there will be a number of relationships to manage and regulate, the key ones being:
- that between the target company and the incumbent management team who will continue to operate the business during the buy out process. We can advise the management team on how to deal with the conflicts that will invariably arise due to this dual role
- that between the Newco/management team and the seller in relation to the sale itself
- that between the Newco and its funders and between the funders themselves (which might include the seller) if more than one
- that between the various members of the management team.
Each of these parties will have its own interests and negotiation position and part of our role as your legal adviser will be to provide you with sensible, pragmatic and realistic advice as to what terms might reasonably be negotiated, based on the relative negotiating positions.
Although the concept of an MBO/MBI is relatively simple, the transaction can be complex due to the need to balance the conflicting interests of all the parties involved. This underlines the importance of appointing experienced legal advisers.