There are many differences between an MBO and an MBI. The key differences are as follows:
- An MBO involves existing team members who have day to day knowledge of operations
- An MBO is seen by funders as less risky
- An MBO might be more likely to get the support of the existing owner
- An MBO might have a greater chance of keeping the owner involved in an equity capacity
- Existing management might not be comfortable in stepping up to drive the business forwards
- Existing management might be risk averse and don’t wish to invest their own capital
- Existing management might wish to invest but don’t have the money to make it happen
- Existing management might be seen by funders as not being senior enough/sufficiently experienced to be backable as a team
- An MBI will typically give the incoming buyer/investor a larger slice of equity, if not 100%
- An MBI is inherently more difficult to undertake but there are hundreds of businesses for sale which represent a good and solid business on which to build future growth and a sector “roll up”
Therefore, an MBO is not necessarily better than an MBI; just different for different reasons. However, if you can combine the two together to form a Buyin Management Buyout (BIMBO), then you have the “best of both worlds”. A BIMBO transaction can offer many things including:
- Ongoing role for management
- Equity for existing management in the future business
- The ability for the “old guard” and the “new guard” to come together and effectively make 1+1=3
- The ability to keep the existing owner involved, if they so wish, including a slice of equity (often under 20%)
- A likelihood of funders being seriously interested in backing the transaction
An incoming investor to an BIMBO transaction will likely be from the sector or a related one and therefore, should be able to add value to the business from day one. The buyer will be a senior executive who has credibility in their own right from years of experience gained in business, not necessarily having run their own business, but with a wealth of experience across sales, commercial and general management, finance, operations and possess relevant sector knowledge, etc.
The buyer might have been operating as a Non Executive or; in a portfolio role or; in some form of consultancy capacity whilst searching for the right business to buy into.