Dave Harries

What is a Management Buyout and a Vendor Initiated Management Buyout?

Neil Ackroyd

Right, there are all sorts of variations on this. You have an MBO What is a Management Buy Out , or a Management Buy In an MBI or a VIMBO a Vendor Initiated Management Buy Out, you even have a BIMBO a Buy In Buy Out which is a combination of a Management Buy Out and a Management Buy In. But the difference between a MBO and VIMBO is actually where I sit in on the transaction. So for example, if the owner manager comes to me and says I want to do a Management Buy Out but I don't really want to sell to trade, I want to sell to the Management Team and I am going to pay you Neil to maximise my price. Then it is VIMBO. If the Management Team come to me and say Neil I have got a sniff of a Management Buy Out here I want you to come in and maximise my equity stake then it is a plain Management Buy Out. Now ultimately the difference between these two transactions is what the advisor tries to do. So under a VIMBO the whole process is run essentially as an institutional buy out so you go directly to the funders and you hammer them on price and try and get the out and out maximum price and then in the equation that you talk about in valuation model the balancing figures is the management equity stake. So the vendor is in control, the price is maximised and the equity stake for management is the balancing figure so is effectively minimised.
In a Management Buy Out the opposite is true. So because the advisor is going to funders, they are actually trying to minimise the price because they are not working for the vendor, they are working on the buy side. They are then beating the institutions up, for want of a better word, on how much equity their client can get. So you have got a VC offering the highest equity stake and therefore the price is the balancing figure so the difference really is who wants to get the best out of the deal.