Management Buy-ins (MBIs)

MBI opportunities typically comprise someone in senior management (or a team) coming out of a large company, looking for an entrepreneurial challenge to acquire and run a smaller business, often in the same sector. Alternatively, it may be 'serial entrepreneurs' who, having successfully sold one business, want to acquire another.

The companies targeted for acquisition by MBI teams will generally be in a similar situation to the MBO prospects, either a family-owned business coming to a generation change with no family succession, or a group of companies looking to sell a division or subsidiary. It is fairly common for a buy-in team to join forces with a buy-out team, where there are complementary strengths and skill sets in the respective teams. The unfortunate abbreviation for this combined transaction is a 'BIMBO' (buy-in/management buy-out).

As with an MBO, the essence of the 'financial engineering' behind a successful MBI is to borrow almost all the necessary funds for the acquisition from banks and venture capitalists, then to use the company's future profits and cash flows (which should be growing) to repay the debt, thereby enabling the MBI team ultimately to sell the business debt free on a multiple of the higher level of profits. Again, as venture capitalists take more risk than banks, they look for a share of the ownership (ordinary shares), which dilutes the MBO team's ownership somewhat.

Cole Associates' role in an MBI is as follows.

If the target company has not yet been identified:

• Helping the MBI team to define the acquisition criteria, often based on their relevant industry experience.
• Extensive research to identify a list of potential targets that fit the acquisition criteria and obtaining information on each of them.
• Approaching the owners of the target companies on behalf of the MBI team, to determine the their appetite for disclosing information and entering into discussions.
• Evaluating information provided by the owners, and assessing the relative merits of different target companies.

When a 'preferred target' has been identified, Cole Associates' role is similar to that for an MBO:

Valuation and feasibility review:

• To determine whether the vendor's price expectations are sensible, and if there is a realistic prospect for funding the MBI.

Raising finance:

• Guiding the MBI team in the preparation of their Business Plan and financial projections, setting out their strategy for the business.
• Advice on the most appropriate funding structure (i.e. the mix of debt, venture capital, finance leases, grants etc).
• Introducing the funding opportunity to a selection of appropriate funders Assisting the MBI team in presenting their proposals to the funders.
• Negotiating with the funders, to obtain the funds on the most advantageous terms possible for the MBI team.
• Liaising with the preferred funders' throughout the remaining stages of the investment/lending process, including due diligence and legal agreements, through to credit approval.