Many directors will have a strong exit strategy, or succession plan in place for their business, but did you know that a management buy-out (MBO) or a management buy-in (MBI) can mean the difference between financial success or failure?

So what is a management buy-out?

A management buy-out is a form of acquisition where a company’s existing managers acquire a large part or all of the company from either the parent company or from the private owners.

A range of circumstances can trigger a buyout opportunity, but many come about if an existing company owner wishes to unlock their wealth by selling or retiring.

For many managers, an MBO is their first venture as an entrepreneur.

And what is a management buy-in?

A management buy-in is a purchase of shares in another company by investors who are not currently working in that business ie an acquisition

What are the benefits of a buy-out?

In general, it is often thought that companies purchased through an MBO have a higher chance of ongoing success and profit than those that have been bought by an external buyer. This is normally down to the fact that the new owners already know the business inside out and so are able to hit the ground running and often swiftly implement organisational and procedural changes. It is also easier to maintain relationships with key clients and suppliers that can be vital to the success of the business.

What are the pitfalls of a buy-out?

MBOs can involve several people clubbing together who invest to make their venture successful. But having too many cooks in the kitchen can be off-putting and confusing.

Both MBIs and MBOs have been shown to make good returns on investment, and various types and levels of funding are available.

What are the advantages of a buy-in?

If the current owners of a company are not able to manage the company successfully or if they no longer wish to be involved or say wish to retire and exit the business, a management buy-in (MBI) can be a win-win situation for both buyers as well as the sellers.

The new management team might have better knowledge, contacts, experience, etc. In addition they may be able to invest extra capital to grow the business more quickly.

What are the pitfalls of a buy-in?

The new management team may also fail to bring the required growth in the company.

Buyers who don’t understand the business sector are taking a higher risk unless there is expertise retained in the company.

How can we help?

There are various sources of financing that may be available to complete your deals.

Our friendly staff at Blue Bull Finance can provide help and support to anyone wishing to venture down the MBO or MBI route.

We are experts in finding finance to suit your particular needs.

To find out more, give us a call on 0333 939 8552 or email rick@bluebullfinance.co.uk