March 21st, 2013
By Jo Haigh
No not that sort of BIMBO!
BIMBO –Buy in/ Management Buy Out is an amalgam of two types of acquisition processes. An external management candidate (with or without funds although it helps if they have some hurt money) and the existing management team (perhaps with the exception of the major shareholder) orchestrating the acquisition of their business.
Management Buy Outs (MBOs) were commonplace in the cash rich 90’s. Management Buy Ins (MBIs) have always been more difficult to facilitate as a trade buyer will inevitably have more funds available and can identify immediate synergies that a management candidate may not be able to.
In this very different economy, MBOs are a struggle at best to get away and for an MBI candidate with no or relatively little funds, well-nigh on impossible.
However the two combined can be potentially a more positive scenario for funders to consider. This for a number of reasons:
- The risk is diluted across a greater number of individual both in terms of personal worth but also (sad to say) loss of life.
- The combination of an external candidate often with different contacts, possible introductions into new markets and a different perspective can be very valuable.
- As very often the MBO opportunity has come about because the major shareholder is exiting and he/she is often the Managing Director, the external candidate can be an obvious person to fill the skill gap.
- As funding will be difficult externally and if the only deal for the vendor is some sort of management deal, the vendor is often more relaxed about lending to the management team rather than just an MBI candidate who they will not have worked with and known in the same way as their own management team.
- Sometimes management candidates are of such high quality that, although they don’t come with money of their own, they often have a private equity backer behind them that, at worst, can gap fund.
If you are an MBO team and recognise you have both a skill gap and a funding gap that needs rather more than straight debt to finance or the debt simply isn’t available, then a management candidate probably isn’t as difficult as you may think to identify. Lots of Private Equity (PE) investors know of these people as do banks, lawyers and corporate financiers. Just put the word out.
Choose with care as you are going to be well and truly hitched to them! So do your vetting on their CV etc but don’t forget it’s cultural fit and shared values that matter more than anything else.
Jo Haigh is a Partner at fdscfs and Cracking Boards. Email Jo.firstname.lastname@example.org or call 01924 376784 / 01484 860501.