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What is a Management Buy-in (MBI)?

A management buy-in refers to a transaction in which an external management team purchases a significant ownership stake in a company. Unlike a management buyout (MBO), where the existing management team acquires the business, an MBI involves the introduction of new managerial talent from outside the organisation.

Typically, this external management team aims to leverage their expertise, experience, and fresh perspective to revitalise the company and drive future growth.

The structure and terms of an MBI will often be negotiated with assistance from an Accountant or Corporate Finance Advisor, who may also provide guidance on obtaining the funding. 

The structure and terms of an MBI will often be negotiated with assistance from an Accountant, Finance Broker or Corporate Finance Advisor, who may also provide guidance on obtaining the funding. 

It is usually an attractive option for businesses in various situations:

Succession Planning: When a company's current owner or management team is looking to retire or transition out of the business, an MBI is an attractive solution. It allows the existing owners to exit while ensuring continuity and providing an opportunity for new leadership to take charge, bring in new expertise and ideas while recognising value in their current management teams, and the importance of maintaining their brand ethos and legacy.

Corporate Governance and Professionalisation: For family-owned businesses or companies with a history of informal management structures, an MBI can introduce professional management best-practices. External managers often bring with them established processes, performance measurement systems, and governance frameworks. An MBI can help professionalise a company's operations, improve transparency, and enhance decision-making processes.

Strategic Growth, Expansion and Accessing Specialised Expertise: If a company is seeking to drive growth and expand into new markets or sectors, an MBI can inject fresh perspectives, expertise, and resources. External managers with industry-specific knowledge and experience can bring innovative strategies, access to new networks, and the ability to scale the business. Bringing in external managers with a track record in a particular sector or niche can provide the company with a competitive edge, access to new markets, or the ability to leverage emerging technologies.

What is a Management Buyout (MBO)? –SME Capital

What are the benefits of an MBI?

For many business owners, the primary advantage of an MBI lies in the injection of new energy and expertise into a business.  The value of fresh ideas, innovative strategies, and a broader perspective on the growth opportunities of a business is important to enhance strategic direction.

An MBI often leads to a re-evaluation of a company's strategic direction where a new management team can conduct a thorough assessment of the organisation’s opportunities, and the challenges to overcome, in order to compete and grow.

Redefining goals and realigning a business strategy, while daunting for established management team, usually positions a business in a stronger spot.

External management teams involved in a MBI often bring with them a wealth of network connections, invaluable in opening doors to new business opportunities, strategic partnerships, and accessing additional resources and talent. 

Potential issues and challenges to consider

The integration of new management into an existing company culture can be a complex and delicate process. 

Integrating the management team's values, leadership style, and vision with the existing company culture comes with risks. The differences in organisational philosophies can silo and polarise established management teams and employees. To reduce the fear-factor of an MBI internally, open communication, empathy and the promotion of a shared vision and values are important for buy-in by the wider business, bridging any cultural divides.

This is especially important with SMEs who are by nature smaller and operate as a family unit. 

Employee communication, engagement and retention regarding any change in management needs to be done correctly otherwise it can lead to uncertainty and anxiety among employees. 

This is especially important during the early transition. Employee morale and engagement is vulnerable at this stage. Clearly conveying the goals and benefits of the MBI and involving employees in the decision-making process can help alleviate concerns and foster a sense of ownership. 

Customers, clients and supplier relationships also need to be managed delicately. 

Maintaining relationships with customers and suppliers is essential during an MBI. 
The management team should assess the impact of the transition on existing business relationships and take proactive steps to reassure customers, clients and suppliers of the company's continued commitment to quality and service. 

It is critical to have a well-planned transition strategy in place to mitigate any potential disruptions and build trust with key stakeholders.

MBIs often involve substantial financial commitments, including the need for external financing.  The management team must carefully evaluate the financial viability of the transaction and create a robust business plan that demonstrates potential returns and mitigates risks. Engaging with financial advisors and conducting thorough due diligence is crucial to ensuring a smooth transition. 

Securing adequate financing is often a significant challenge in an MBI. 

Debt lenders like SME Capital can help secure the funding required.

Complying with legal and regulatory requirements is also a crucial part of this transaction. The management team should thoroughly review all applicable laws and regulations, such as employment regulations, intellectual property rights, contracts, and industry-specific compliance requirements.

Typical stages of an MBI (Simplified)


Identification and Evaluation: The initial stage of an MBI involves identifying suitable target companies for acquisition. This can be done through personal networks, industry contacts, or engaging with professional advisors. Once potential target companies are identified, the management team evaluates their viability, financial health, growth potential, and alignment with their expertise and goals.


Due Diligence: This stage involves conducting comprehensive due diligence on the target company. It includes analysing financial records, legal contracts, operational performance, customer and supplier relationships, market positioning, and any potential risks or liabilities. 


Financing and Deal Structuring: Once due diligence is completed and the target company is deemed suitable, the management team begins to structure the deal and secure financing.  This involves evaluating various financing options, such as bank loans, private equity investment, or a combination of sources. The team collaborates with financial advisors and legal experts to negotiate terms, finalise the purchase price, and determine the ownership structure.


Negotiation and Purchase Agreement: At this stage, negotiations between the management team and the current owners or shareholders of the target company intensify. The purchase agreement, which includes the terms of the transaction, is drafted and negotiated. The agreement typically covers details such as the purchase price, payment terms, warranties, non-compete clauses, and any conditions precedent to the completion of the MBI.


Regulatory and Legal Considerations: Industry, regulatory approvals may be required before the MBI can be finalised. The management team must ensure compliance with applicable laws and regulations, including competition laws, securities regulations, and any sector-specific requirements. Engaging legal experts with experience in mergers and acquisitions is crucial to navigating these complexities.


Execution and Integration: Once the purchase agreement is signed and regulatory approvals are obtained, the MBI moves into the execution phase. The management team assumes control of the target company and begins implementing their strategic plans. This may involve restructuring the organisation, aligning key personnel, integrating systems and processes, and driving cultural change. Effective communication and collaboration during this phase are essential for a smooth transition and employee engagement.


Post-Acquisition Monitoring and Growth: After the MBI is complete, the management team closely monitors the company's performance against the business plan and objectives outlined in the acquisition strategy. They make necessary adjustments, assess risks, and capitalise on growth opportunities. Ongoing evaluation and review of the business strategy and financial performance ensure the long-term success of the MBI.


If you would like to discuss MBI financing in more detail or our wider funding capabilities do get in touch.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.

June 2023

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