Management Buy-Ins (MBI) Solicitors 

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The good news is that Witan Solicitor’s corporate lawyers have a wealth of experience handling management buy-ins and buy-outs. Our legal experts will be by your side throughout the entire process, ensuring that your interests are protected.

Since 2014, we have provided comprehensive legal advice to private equity firms, management teams, vendors, venture capitalists and other funders. This means that you can be confident that your management buy-out or buy-in will be handled smoothly and completed as quickly as possible.

Contact our expert corporate lawyers today to arrange your no-obligation consultation regarding your buy-out or buy-in. Simply send an enquiry to info@witansolicitors.co.uk.

What is a Management Buy-In?

As the name suggests, a management buy-in is where an outside management team purchases a company or shares in the company while keeping the existing management team.

Management buy-ins can pose a number of risks given the lack of prior knowledge the management team has about the business. That is why it is important to seek advice from an experienced corporate lawyer who will conduct thorough due diligence and negotiate warranties and indemnities.

What is a Management Buy-Out?

In simple terms, a management buy-out takes place when members of the management team purchase the company and involves three transactions:

• Establishing the acquisition group
• Funding the acquisition group
• Acquiring the target company

Generally, the management team will set up a new business as the acquisition vehicle.

Types of Management Buy-Ins

There are many different ways to transfer management and ownership of a company. Here are three common types of Management Buy-Ins that we regularly oversee:

1. Management Buy-Ins

A Management Buy-In (MBI) is a company purchase from an external party. It comes with a risky adjustment period in which the new owners familiarise themselves with the company and implement their management approach. However, they benefit from a new outlook on the business and its performance. 

2. Management Buy-Outs

A management buy-out (MBO) is a purchase of a company by individuals who already work there. Typically, the existing management team makes a joint purchase of the business. They are familiar with the company structure, reducing the risky adjustment period. However, the company misses out on the new views and ideas of an owner with an exterior perspective.

They are commonly used when the business owner wants to retire or to drop teams and business divisions that a company does not want to take forward. 

3. Buy-In Management Buy-Out

In a Buy-In Management Buy-Out (BIMBO), existing management teams that do not possess the necessary ability to organise the company are bolstered by external owners so that they can effectively lead the business. It is often an attractive prospect for private equity funders. 

Challenges of Management Buy-Ins

New management teams usually take time to settle in as they get used to the business structure and implement their new strategies. This unfamiliarity often means they are met with scepticism. 

With our support, buyers can smoothly transition into their new management roles. We emphasise handover to eliminate teething issues and help you hit the ground running.   

Funding a Management Buy-In or Buy-Out

The type of funding available will vary depending on the size and cash flow of the company. Generally, funding will be provided by a range of sources, including:

• The management team – These funds are very important and are usually used to determine how committed they are to the transaction
• Private equity – This may involve buying shares and/or providing additional funding such as asset-based finance and loans. To maximise their short-term rate of return, funding from a private equity firm may include conditions about how the company will be run and what objectives need to be met
• Bank loans – Funds may be borrowed from a bank or a group of banks

It is worth noting that it may be harder for smaller companies to acquire funding. This is because buy-outs and buy-ins are usually funded against the company’s assets, with members of the management team being expected to cover some of the purchase price personally.

What Documents are Required?

Our legal experts specialise in drafting and reviewing a number of different documents required for a management buy-in or buy-out, including:

• Confidentiality agreements
• Due diligence questionnaires
• Heads of terms
• Sale and purchase agreements
• Stock transfer forms

Are Warranties Necessary in Buy-Outs?

Although management buy-out teams usually have an active role in the decision-making process, the company’s articles or shareholders’ agreements can limit their involvement. That is why it is important to make sure that warranties are included in the agreement, such as:

• Indemnities – If the target company has ongoing or future liabilities, such as outstanding tax claims or expected damages to be paid, the management team needs to be made aware of these and should consider requiring the seller to bear the cost of these liabilities
• Restrictive covenants – These prevent the current owners from setting up another company in competition
• Share incentives – It is not uncommon for management teams to award equity to key employees but it is wise to make provisions for a pool of shares to be made available

Why Should I Consider a Management Buy-Out or Buy-In?

Buy-outs and buy-ins provide an attractive opportunity for a parent company looking to sell part of its business or business owners planning to retire. Not to mention, the acquisition process is usually confidential and swift. However, before considering a buy-out or buy-in, it is crucial to get comprehensive legal advice from experts you can trust. Our corporate lawyers will help you weigh your options and identify any potential risks. 

How We Support Buyers

We are by your side throughout the buy-in, from the initial approach to the completion of the sale. Our experts have worked with businesses in a huge array of sectors and, therefore, understand the different requirements and problems that each industry presents. 

How We Support Sellers

When you want to sell and exit your business, a new management team is often ready in the wings to pick up the reins. In this case, we can help you complete an MBO to sell your business to these capable new owners. We explain the intricacies of your decision and recommend options that meet your needs. Then, we represent you throughout the negotiations to remove all the hassle and let you get on with more important matters.

Why Choose Witan Solicitors?

Completing a management buy-out or buy-in can be challenging and requires the expertise of a multi-disciplinary law firm that specialises in all areas of commercial law. At Witan Solicitors, we will support you throughout the acquisition process, from advising on any conflicts of interest and preparing and reviewing documents to negotiating warranties and undertaking due diligence. By choosing Witan, you will benefit from:

• Over 100 years of combined experience
• Representation by a Legal 500 recognised law firm 
• Practical legal advice without confusing jargon
• Proven track record of successfully handling management buy-ins and buy-outs
• Commercially-minded solicitors in London, Birmingham and Northampton

FAQs

What are the benefits of a management buy-out?

A management buy-out usually makes commercial sense because:

• They allow the company to continue operating, which in turn keeps staff employed and customers and suppliers happy
• There is usually less risk involved for buyers and sellers
• They are cost-effective and quick to complete as there will usually be less due diligence required

How is a management buy-out funded?

A management buy-out is usually funded by a mixture of cash, debt and equity. However, the transaction may be financed by the existing owner of the company, which is known as vendor financing. Vendor financing may involve:

• Providing the funds through a loan
• Leaving the consideration for the shares outstanding
• Allowing the management team to buy the business in stages