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 control of the company following the acquisition.
An alternative deal structure is a management buyout or MBO, which is an acquisition of all or part of a company by the current management (and possibly other staff), either with outside financing or otherwise.
The difference, therefore, between this type of transaction and the MBI is whether the company’s buyer was already in the company prior to the acquisition.
A buy-in management buyout is a transaction where an external party, often a private individual buyer, joins forces with the management team of the business in question to form a “super team” to drive the purchase of the business from the existing owners.
The external individual invests their own capital and often brings a different or additional skill set to that which the internal management team already possesses.
Often, the external party will act in a non-executive capacity, steering the Board and strategy but not becoming too involved in running the business; rather, they will leave the management team to handle the day-to-day operations.
A full sale is a transaction in which the owner sells 100% of the shares in the business.
A partial sale is a transaction in which the owner sells less than 100% of the shares in the business.
This sort of transaction can work well for a private buyer because funders are, in principle, keen to back a business where a new and an existing shareholder come together as one to make a new team.
This is perceived to be a powerful mix, a bit like 1 + 1 = 3.
An asset sale is a transaction whereby the seller retains possession of the legal entity, and the buyer purchases individual assets of the company, such as equipment, fixtures, leaseholds, licenses, patents/trade marks, customers and stocks.
The buyer does not assume responsibility for any liabilities from the date of the transaction.
A goodwill sale is one where the price paid for the business is higher than the sum of the net asset value of all of the assets purchased less the liabilities assumed in the acquisition process.
Goodwill is the element of price over and above the net asset value of the balance sheet at the date of the transaction.
This is a business where the financial situation has become increasingly difficult and might even have slipped into a loss-making situation.
Often, the issue is not so much profit or loss, but rather whether the business has enough cash reserves to continue to meet its debts as they fall due.
This could be due to a number of factors, but essentially, it is a situation where a new buyer is sought to ensure that future trading can continue.
Often, this sort of transaction will be one where a limited price is paid for the assets and goodwill of the business on the basis that the liabilities are taken on by the new buyer, but more positively, jobs and the site will normally be saved, and trading can continue.