Management Buy In: Everything you need to know about MBI
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Management Buy In: Everything you need to know about MBI

The Management Buy In (MBI) is one way of Succession of a business The original owner may no longer be able or willing to continue his or her business due to age.

You don't have much time to read? The most important facts about the MBI in brief:

  • The management buy-in is a succession option which also considered in the SME sector should be.
  • An external management buys Parts or the entire company.
  • The fresh wind stands Lack of industry knowledge and optimisation drive opposite.

Management Buy In Definition

A Management Buy In (MBI) means that a company or company shares of a company are through external management is taken over.

Difference Management Buy Out Buy In

Whereas with a Management Buy In (MBI) an external management takes over the company, the succession will be Management Buy Out (MBO) from your own company management taken over. The management buy-out is thus often the more obvious solution, but not necessarily the better one.

If you are thinking about selling by MBI, we can support you with an initial value assessment and our extensive contacts.

MBI in the SME sector

Particularly in medium-sized businesses, there is often a lack of a suitable successor. Often children and other relatives do not want to take over the business and the employees lack the financial means. Therefore a Management Buy In (MBI) often the only option for survival of the operation.

However, the company is then often taken over by experienced managers who are not Identify with the company, the industry or the brand can. However, this is essential, especially for medium-sized companies.

If the company to be sold is not economically distressed, it often has no need for optimisation. External managers, however, often try to optimise or improve more and more. This can easily lead to the opposite in a healthy company.

Peaceful or hostile takeover

The sale of a business can be voluntary or involuntary. If an entrepreneur is looking for a successor, the Sale amicable and there is talk of a peaceful takeover.

A hostile takeover is when an external management attempts to gain control of the company against the will of the owner.

Hostile takeovers occur frequently in public limited companies. In this case, large investors try to gain a majority stake in order to gain control over the company.

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Management Buy In Advantages and Disadvantages

Advantages of the MBI

A new management brings fresh impulses and additional know-how. This can be brought into the acquired business. This is particularly In companies, the advantage where management is replaced due to age. There is thus the possibility of new innovations and any existing "operational blindness" is replaced.

Particularly in the case of an economically distressed company, a New management to bring in new impulses and thus save it from insolvency if necessary.

Disadvantages of the MBI

An external management is often unfamiliar with the sector and with the day-to-day business operations. This can become a risk for the continuity of the company.

While many managers have the necessary management experience, they have Too little knowledge of the sector and the company. This can lead to serious misjudgements.

The induction of external managers can take a lot of time, as they first have to familiarise themselves with all the details of the company. This can be serious in a company that is in financial difficulties, as there may not be enough time.

In the case of a management buy-in (MBI) External managers often lack equity and the purchase must be largely debt financed. This means that the company often has to make redemption and interest payments long after the takeover.

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Management Buy In Process

After the owner of a company has decided to sell his company to an external management, he must of course first find the interested parties. Many channels can be used for this. Management consultants also help in the search for a suitable successor.

KERN Tip Management Buy-In Process

After a suitable interested party has been found, first of all a Confidentiality agreement (NDA) concludedas sensitive data must be disclosed as part of the negotiation process.

As a rule, the first step is to agree on the framework conditions of the planned transaction and to set them out in a letter of intent (Letter of Intent - LoI) together.

Once these cornerstones are set, the potential buyer examines the company in the form of a Due Diligence.

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Due Diligence

The due diligence is intended to Identify opportunities and risks of the company to be sold and is also an important basis for determining the purchase price. Furthermore, due diligence helps to determine which guarantees and indemnities are included in the Company purchase agreement should be included.

Contract negotiations

The most important and most difficult point in contract negotiations is probably the purchase price. Often the ideas are very far apart. The reason for this is that the cannot determine the purchase price of a company solely by calculation and the company usually still has a very high sentimental value for the owner. This often leads to an inflated asking price.

We explain in detail in this article how the enterprise value can be calculated.

Therefore, the first step should be a Company valuation according to the capitalised earnings method be presented in accordance with the business valuation standard of the Institute of Public Auditors in Germany.

Together with the due diligence report, this then provides a basis for negotiating the purchase price.

The buyer presents the binding financing documents to the owner during the contract negotiations.

Once all the framework points and other contractual contents have been clarified, the purchase contract can be drawn up and signed by both parties. 

Transactions

Once the purchase agreement has been signed by both parties in mutual agreement, the company shares can be transferred. Often the Transaction of the company shares set for a reference date in the futureso that the signing and the economic transfer of the company (Closing) fall apart.

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Management Buy In Variants

Leveraged Buy In

Leveraged Buy In (LBI) means that an external management takes over a company completely or proportionally. The The target company is financed mainly by means of debt capital. financed.

BIMBO

Buy-in management buy-out (BIMBO) is a Combination of management buy-in and management buy-out. Here, part of the company is bought by the existing management. The other part of the company is bought by external managers.

Management Buy In Financing

The financing of a management buy-in is usually made up of equity and debt. The special feature of an MBI is that the equity usually consists of only a small proportion and the MBI Financing by debt capital from a correspondingly higher share. In individual cases, a Management buy-in financed exclusively by debt capital become.

In an MBI, the equity capital is raised exclusively by the external management. However, this is often not available and therefore requires a high level of borrowing.

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Management Buy In Example

Sabine T. is an entrepreneur and runs a textile factory as part of her business. As she has now turned 60, she would like to retire from professional life and are happy to pass on their business. Your children have other professions and do not want to continue the business. Your employees are either already of an advanced age, do not have enough financial means or are simply not interested in taking over the business.

That is why Sabine T. is now looking for an external management to continue running her company. In the context of this, Mr. and Mrs. S. come forward as interested parties.

Mr. and Mrs. S. already run a business in the sewing industry and would like to expand the trade.

Sabine T. considers the S. couple to be the ideal successor. After both parties have agreed on a few cornerstones, the company is taken over by Sabine T. after the Capitalised earnings method assessed. The S. couple runs a Due Diligence through. This is followed by detailed contract negotiations. The negotiating partners quickly agree on both the purchase price and the other contents of the contract. Mr. and Mrs. S. present Sabine T. with the binding financing documents before.

On this basis, the contract of sale is drawn up and signed by both parties. As there are no other formalities to be completed, the business is transferred from Sabine T. to Mr. and Mrs. S. when the contract is signed.

An investor's view of the Company acquisition we will show you with the help of this video:

Management Buy In Challenges

One of the biggest challenges in MBI is time. Most entrepreneurs are reluctant to retire from their business and keep it as long as they can. Only when they reach their limits physically and mentallythey start to talk about a Company succession respectively Company succession to think about.

Even when a suitable successor has been found, experts say that the a transitional period of 1 to 3 years for the succession is calculated in be made. In addition, the early arrangement of succession improves the qualitative rating that banks and savings banks use as a basis for granting loans.

Another challenge is that older entrepreneurs, in particular, go into succession negotiations with too high expectations. For the most part, this is linked to a Very high sentimental value with their company. However, the sentimental value is individual and No basis for determining the purchase price. Only a valuation can determine the realistic purchase price.

Ultimately, it is also challenging to create a Successors with the corresponding know-how and the entrepreneurial and factual requirements. However, this is a basic requirement, otherwise it cannot be guaranteed that the business will continue to exist.

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Offers

As experts for business succession in medium-sized companies, we can send you customised offers for a takeover via MBI. Conveniently create a requirements profile under the following link - we will take care of the rest.

Create a free search profile and discover even more offers to buy.

Structuring and taxes

While the entering managing director-shareholder is usually interested in a long-term entry into the company both on the level of management and with regard to the shareholder position, it is at the same time the goal to completely replace the financing investors over a foreseeable period of time.

These are directly involved in the transaction and often acquire shares in the company themselves - at least for a transitional period. shares in the company. Depending on the volume of the transaction, however, a complete acquisition of the company by the future managing director-partner can also be considered if only credit institutions are available for financing.

Constellations are also conceivable in which the seller retains a small share in the company for an interim period or supports the buyer with a seller's loan to finance the transaction. In this way, the seller commits himself to his company in the future and will work towards its successful development in his own interest.

In another variant of the MBI (namely for large transaction volumes), a (financial) investor seeks the expertise of the manager and, as an incentive, allows him to become a shareholder so that he also participates in the value of the company in the event of a joint sale. In this case, the manager is often given the opportunity to take over shares in the business at special conditions (sweet equity) if certain turnover and/or profit targets are reached, so that he profits disproportionately from the subsequent sale of the company.

In these cases, the tax office checks whether gift or Wage tax becomes due. As a rule, however, gift tax does not apply to transfers between strangers.

However, the tax office checks whether the Manager a non-cash benefit has accrued. A non-cash benefit arises if the share in the company was transferred at a lower price than its market value.

The pecuniary advantage is then offset against the manager's income and correspondingly subject to wage tax and, if applicable, income tax. Solidarity surcharge taxed.

Conclusion

The Management Buy In (MBI) is a good option for companies that do not have a successor. With the MBI it is often possible to find successors who share the values of the previous shareholder-manager and are interested in a long-term commitment. The MBI offers the prospect of successfully continuing the business. The MBI is also an attractive option for ailing companies. MBI is a promising opportunity, as it increases the chances of reorganisation through new management. increase considerably.

However, an MBI can be particularly dangerous for medium-sized businesses, as an external management often does not have the necessary knowledge to continue running the business. In order to prevent this from happening Medium-sized companies should deal with company succession at an early stage. If the succession is only secured through a management buy-in, it is important to already 3 to 5 years in advance for a suitable interested party to look for.

For a potential successor, on the other hand, an MBI can represent a unique opportunity to take over the leadership of an already existing and successful company without having to start a new company and the associated difficulties.