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BIMBOs: The hot new acquisition process

3 Mins

No, not a thick blonde woman.

BIMBO – buy-in/ management buy-out is an amalgam of two types of acquisition processes. An external management candidate (with or without funds, although it helps if they have some hurt money) and the existing management team (perhaps with the exception of the major shareholder) orchestrating the acquisition of their business.

In the cash rich 90’s MBIs (management buy-ins) were more difficult to facilitate than MBOs (management buy-outs), as a trade buyer will inevitably have more funds available and can identify immediate synergies that a management candidate may not be able to.
In today’s very different economy MBOs are at struggle to get away and an MBI candidate with no or relatively little funds, well – nigh on impossible.

The two combined, however, can be a certainly more positive scenario for funders to consider, for a number of reasons:

  1. The risk is diluted across a greater number of individuals, both in terms of personal worth but also (sad to say) loss of life;
  2. The combination of an external candidate, often with different contacts, possible intros into new markets and a different perspective can be very valuable;
  3. The MBO opportunity often comes about because the major shareholder is an exiting individual, and sometimes the managing director. As a result, the external candidate can look to them to fill the skill gap;
  4. If the only deal for the vendor is a management deal they might be more comfortable lending to the management team, rather than an unknown MBI candidate; and
  5. Although they don’t come with capital of their own, some management candidates have a private equity backer behind them who can fill the funding gap.

If you realise you have both a skill gap and a funding gap that needs rather more than straight debt to finance, or the debt simply isn’t available, then a management candidate probably isn’t as difficult to identify as you think. A lot of PE investors know will know plenty of them, as do banks, lawyers and corporate financiers. Just put the word out. Choose with care: you are going to be well and truly hitched to them.
So, do your vetting on their CV but don’t forget its cultural fit and shared valued that matter more than anything else.

Jo Haigh is head of FDS corporate finance services and the author of ‘The Financial Times Guide to Finance for Non Financial Managers‘. 

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