What are the differences between an MBO and an MBI? Corporate & Commercial

A management buyout (MBO) is a purchase by the firm’s management team. A management buy-in (MBI) is when, on a change of ownership, external management is introduced to supplement or replace the existing management team.

Both are popular within private businesses, for example, where the owners wish to retire and give the current management team an opportunity to take the business forward and enjoy the rewards of ownership.

External management may be introduced to add skillsets that the existing management team may lack. They may be serial entrepreneurs looking for a new enterprise and have the backing of their own funds and/or those of their own backers.

Invariably the amount of cash consideration will be determined by the finance the business itself can support. MBOs may well be supported by vendors retaining an equity stake or giving softer payment terms to support the management team and to bridge funding gaps.