Management Buy Outs and Buy Ins

We act on behalf of both the management team and sellers, along with investors for both buy outs and buy ins.  Such buy outs and buy ins can take a number of different forms:

• Management Buy Out (MBO)

An MBO is the acquisition of a business by its existing management team, often funded via a lender, third party or a private equity investor (or a mixture of each). Following the acquisition, the management team own the business and remain in their existing roles.

• Management Buy In (MBI)

An MBI is similar to an MBO, but the acquisition of the business is by a management group from outside of the business.  This is often carried out when the existing management team do not wish to purchase the business.

• Leveraged Buy Out (LBO)

An LBO may take the form of either an MBI or an MBO but it is financed by debt, rather than equity, from an investor.

• Buy in Management Buy Out (BIMBO)

A BIMBO is similar to an MBO but some individuals are installed by the private equity investor to work alongside the existing management team.

• Vendor Initiated Management Buy Out (VIMBO)

A VIMBO is an MBO initiated by the existing owner of the business to the management team (it is usually the management team who initiate an MBO) and the existing owner usually remains in the business with a minority stake.

• Institutional Buy Out (IBO)

An IBO is an acquisition funded by investors who then install a management team after the acquisition and grant the new management team a minority stake. This is often reserved for large or very high value buy outs.

• Secondary Buy Out (SBO)

An SBO occurs after any of the other forms of buy out have previously occurred. In an SBO the private equity investor who funded the initial buy out sells their stake to another private equity investor.

Buy outs can be complex, both in terms of structure and negotiation. The complexity arises from the arrangements required to fund the buy out, be it private equity, debt (or a mix of both), coupled with the number of parties often involved and their competing interests.

Often a key issue in buy outs is Warranty negotiation. Although this is expected to be simple, it is often more complex than expected in a buy out. This is usually due to the division of responsibilities between the management team and the split of knowledge between trading, management and finance.

The funding of a buy out necessitates the creation of a group structure of at least one (and sometimes multiple) companies to both acquire the company and take on the funding (either as debt, equity or both). 

Some recent buy outs our corporate team have advised upon include:

• Acting for the sellers in a buy out of a high value PR/Marketing company. The transaction took the form of a VIMBO, the seller remained part of the business following completion with a reduced minority stake, requiring intensive negotiations of the post-completion constitutional arrangements;

• Acting for the management team in an MBO of a UK solicitors’ firm incorporated as a limited company. The seller was a founder of the business and their removal required detailed consideration of the warranties due to the split of knowledge between the exiting seller and management team;

• Acting for the seller in an MBO of a North West based accountancy partnership at law. The negotiations were protracted, focusing particularly on the calculation of the purchase price and ongoing payments to the seller following their exit for recurring client fees and instructions;

• Acting for the seller in an MBI of a chemical company based in the North funded via an investor. One of the management team was an existing member of the team, with the additional members of the management team coming from outside the business. The transaction required intensive negotiations of the purchase price calculation and post completion purchase price adjustment mechanism. The seller was also required to provide all encompassing restrictive covenants by the buyer to safeguard the value and goodwill of the business.