How to obtain MBI Finance

A management buy-in (MBI), wherein the control of the business passes to outside management, will typically involve private equity backing. Because this kind of venture is a higher risk to an investor than a management buy-out (MBO), there are certain qualities an MBI candidate must display in order to secure private equity finance. It has become increasingly common for private equity firms to undertake extensive Due Diligence before making a buy-in investment. On the other side, they will be very careful about who they select as management for the company. If the team is not already working (and proven) in the private equity firm, they will conduct a rigorous head-hunting exercise to find best-matched talent. This will often include psychometric testing as well as referencing.

So what sort of personality make-up are private equity firms looking for in their MBI candidates? Two of the most significant qualities are good leadership and good team-building skills. MBI's tend to have a lower success rate than MBO's because new managers are unfamiliar with the business, and previous managers may not have shed light on all the issues.

A private equity firm will also require that the MBI candidate has relevant sector experience and a good track record. General management skills may not always be enough to satisfy a backer that the business can be run smoothly. Often, it is the case that relevant sector experience and contacts reduces the buy-in risk, and helps build the business. It is usually also true that in most sectors there are enough strong MBI candidates vying for finance, that a backer has no need to consider an entrepreneur's ability to operate in an unproven environment. There are exceptions to this rule, of course, but most private equity firms view sector experience and skills as being crucial for an MBI candidate, to ensure compatibility with and understanding of the business, and to help quickly establish credibility and authority with the existing management team.

A buy-in candidate who is able to articulate clearly where the specific opportunity lies with the company is likely to be favoured by private equity backers. Such opportunities may include: building additional capacity; eliminating excess operating costs; roll-out across markets. The candidate must be clear about where their investment aim is focused, and prove a track record of successfully exploiting similar opportunities.

MBI candidates need to have the strategic vision to spot the opportunity, take a calculated risk, and then exploit the business opportunity they have taken to the maximum. Focus, motivation, and resilience are key qualities, as a buy-in candidate can expect to spend between eighteen months and two years completing a deal. Private equity firms will want to work with an MBI candidate who has a crystal clear vision of the sector they wish to operate in, as well as the contacts and personality to pursue opportunities in that sector.

See here for more information on Management Buy-Ins in the UK with examples.

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