Buyouts and buyins

A management buyout (MBO) occurs when the management of a company buys up a controlling interest (often by buying all outstanding shares).

It doesn’t always have to be the whole company. A group of managers might decide that they would like to own the particular part of the business they run, and operate it as an independent entity. This can happen either as part of a restructuring or if a company is split-up.

Funding for this can be difficult, so the management often uses borrowed money, in which case the deal is known as a leveraged buyout (LBO). In LBOs the lender, in addition to interest, often gets a chunk of equity too.

One of the chief advantages behind an MBO is that the management is no longer answerable to outside shareholders. A management buyin (MBI) is when an existing business is acquired with a view to putting in a new management team not previously associated with it. When new managers and existing managers and employees join forces, this is known as a buyin management buyout, or BIMBO.