An MBI is the acquisition of all or part of a company by one or more persons, external to the business, who will take over the control of the company themselves following the acquisition.
An alternative deal structure is a management buyout (MBO). This involves the existing management team (and potentially other employees) acquiring all or part of the business, using external financing or their own resources.
The key distinction between an MBO and an MBI is whether the acquiring management team was already part of the business before the transaction took place.
A buy-in management buyout (BIMBO) is a transaction in which an external party, typically a private individual buyer, partners with the company’s existing management team to acquire the business from its current owners.
The external investor commits their own capital and usually contributes complementary skills or experience to those of the incumbent management team.
In many cases, this external party operates in a non-executive capacity, guiding the board and overall strategy while remaining largely removed from day-to-day operations, which continue to be led by the existing management team.
A full sale is a transaction which involves the owner selling 100% of the shares in the business.
A partial sale is a transaction in which the owner disposes of less than 100% of the company’s shares.
This structure can be particularly attractive to a private buyer, as funding providers are generally supportive of situations where an incoming shareholder partners with an existing shareholder to form a combined leadership team.
This blend of new and established ownership is often viewed as a strong and value-enhancing combination.
An asset sale is a transaction in which the seller retains ownership of the legal entity, while the buyer acquires selected assets of the business, such as equipment, fixtures, leaseholds, licences, patents/trade marks, customer relationships and stock.
From completion onwards, the buyer does not take on responsibility for the seller’s existing liabilities.
A goodwill sale occurs where the consideration paid for the business exceeds the aggregate net asset value of the assets acquired, after deducting the liabilities assumed as part of the transaction.
The goodwill element represents the portion of the price paid above the net asset value shown on the balance sheet at the transaction date.
A distressed sale arises where the business is experiencing severe financial pressure and is at risk of becoming loss-making or insolvent. The key issue is not simply profitability, but whether the company has sufficient cash flow to meet its obligations as they fall due.
This position can result from a range of factors and often leads the owners to seek a new buyer to safeguard the business’s future. In these circumstances, the consideration paid for the assets and goodwill of the business is typically modest, with the incoming buyer expected to take on its liabilities.
Positively, this type of transaction can help protect jobs, maintain the trading location and enable continuity of operations.