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Management Buy-in (MBI)

Definition - What does Management Buy-in (MBI) mean?

A management buy-in (MBI) occurs when the management team of a particular firm is replaced following an acquisition because the acquired firm is seen to be under-performing, poorly managed or needing succession of an aging management team.

This type of transaction is akin to a management buy-out with the exception that a new independent management team is brought in to facilitate the acquisition alongside the private equity investors.

Divestopedia explains Management Buy-in (MBI)

When a private equity firm determines that a company would be a good fit for their portfolio, they may decide that the current management of the target company is not up to par and, therefore, they will often replace the team with people they think could help the company progress more. Ultimately, by buying-in to the company and placing their own management team, the private equity firm is able to shape the future leadership to best suit their needs and help the company become a profitable investment.

Management buy-in can be a great alternative for mid-market businesses that have not developed the secondary management team needed to run the business in the absence of the seller owner. The exiting owner may be able to remove him or herself from the business in a much shorter period after closing. Businesses that use MBI as an exit channel will usually receive a lower valuation for the following reasons:

  • there are limited exit options for the seller because secondary management expertise and leadership are lacking;
  • the private equity team is doing much of the heavy lifting in terms of bringing in their own management professionals to complete the transaction; and
  • the seller may be willing to receive a lower purchase price to facilitate a much faster transition period.

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Resources

  • Equicapita: Equicapita
    Equicapita's model is to acquire established, private small and medium sized enterprises (“SMEs”) located primarily in Western Canada.
  • Evolution Capital: Evolution Capital
    Leaders in growing small business.