A management buy-in (MBI) is the purchase of a company by an outside management team. In contrast to a management buy-out, where the purchaser is already working for the company, the outside management team wants to replace the existing management. The management buy-in group usually evaluates several companies searching for an undervalued business.
The team leader is usually highly experienced, for example, a (former) board member of another company. By replacing the existing management and applying new strategies to the business, the management buy-in group intends to enhance the value of the company.
The outside management team can either buy shares of the company (share deal) or assets (asset deal) or both (roll over). Most management buy-in transactions are leveraged buy-outs (LBO). The amount of capital needed to buy the company is either provided through bank loans or through high-yield debt (junk bonds).
The repayment of the loan is made out of the free cashflow generated from the company, whereas the assets of the company serve as collateral for the loans. The strategy of a management buy-in can also be combined with a management buy-out.
If the outside management group considers any existing managers of the company of great further value, the new board of directors may also include a former manager of the company, who can share his experience with the new management group. In case of a family business, the question of succession can also be solved by a management buy-in.