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Monthly Archives: September 2010

Management Buy-In or Buy-Out?

When an existing or a new management team is considering to buy a business/assets or a company, they will want to use an appropriate  Asset/Business or Share Sale Agreement in order to seal the deal. So what is the difference between a Management Buy-In and Management Buy-Out when it comes to buying assets of a business?

 Management Buy-Out (MBO) is a term used when an existing management team acquires a business, assets or shares in a business (possibly supported by acquisition finance from a lender and/or equity finance from a venture capitalist). An Asset Sale Agreement for Management Buy-Out is most appropriate for use where a purchaser (management team) buys the business (known as the assets and undertaking) of a single company or a group company but not its shares.When the purchaser (existing management team) buys shares in the business a most appropriate document to cover this transaction is a Share Sale Agreement for Management Buy-Out.

 Management Buy-In (MBI) is a situation when a new management team acquires a business (which may be supported by acquisition finance from a lender and/or equity finance from a venture capitalist). It is expected that the purchase in this case will not have an extensive knowledge of the target and therefore the management team will request more warranties. Contrast this situation with a MBO, where the acquiring management team knows the business very well.  The Business Sale Agreement for Management Buy-In is most appropriate for use by a holding company that is selling the business (known as the assets and undertaking) of one of its subsidiaries but not the shares. However when the purchaser is buying shares in the target, they need to use Share Sale Agreement – Management Buy-In.

 The process of selling assets in a business is more complicated than selling all the shares. It is necessary to identify all the assets and liabilities of the business and for the buyer (existing or new management team) to decide which assets and which liabilities will be transferred. Following this will be some formalities for transferring title to each and every asset. For example you will need to make sure property is transferred and registered. Also novation of certain liabilities which are also transferred may be necessary.

 And finally – a business sale agreement (for MBI or MBO) is not a deed so it can be signed by one person who is authorized to do so on behalf of the party (i.e. management team).

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