A management buy-out (MBO) is the purchase of a company or business by the existing management, whereas a management buy-in (MBI) is the purchase of a company or business by a management team who are not currently involved in the management of that company or business. Other forms of transactions combine elements of MBOs and MBIs. For example, buy-ins/management buy-outs (BIMBOs) involve the purchase of a company or business by a management team comprising both existing and incoming management.
In each case, the funding for the acquisition is normally provided from external sources, including bank debt and private equity/venture capital.
RadcliffesLeBrasseur advises on all aspects of MBOs and MBIs, including:
- considering the objectives of the acquisition and the roles of the parties.
- preparing presentations to the board of the target's holding company.
- commenting on any business plan prepared by the management team.
- introducing the management team to financial advsiers, accountants, venture capitalists, banks and other sources of funding.
- carrying out legal due diligence into the target business and preparing a legal due diligence report (when acting for the provider of funding).
- advising on the tax implications of the alternative purchasing structures.
- negotiating heads of agreement between the seller and the newco which is to be used as the vehicle for acquiring the business.
- drafting and negotiating the sale and purchase agreement, including any warrenties and guarantees between the seller and the newco.
- negotiating the terms of the shareholders' agreement and articles of association which will govern the relationships between management the external equity investors, including restrictions on share transfers, "tag-along" and "drag-along" rights and preference share rights.
- negotiating all documents relating to the provision of bank funding.
- drafting and negotiating the service contracts of the management team.
- negotiating management incentives, including share options and performance-related variations to managment share rights.
- negotiating the terms of the ultimate "exit" by management and the external equity investors, usually by means or a trade sale of listing.
Some examples of recent work are:
- handling the £12m leveraged MBI of a consultancy group.
- acting for the management team on the MBO of an aviation consulting company, including preparing presentations to the holding company's board.
- advising on the MBO of a telecoms sales agency, using debt funding provided by the major customer of the target company.
- advising on the MBO of the construction division of a quoted engineering group.
- acting for a UK company in relation to a subtantial investment by a venture capital house, followed by the buy-out of the original controlling family interest.