Essential skills an MBI candidate requires to secure equity funding

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 management 'due diligence' before making a buy-in investment. 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.


In addition to private equity, there are other ways that a transaction can be financed.

Property Mortgages

Mortgages can be obtained for 75% and upwards of the value of any property being acquired by the company.


Asset Finance

Unencumbered plant and equipment can be financed by specialist asset finance companies to release cash to help fund the transaction. In certain case encumbered assets can be re-financed with existing finance paid off to help release valuable additional cash to complete a deal.


Invoice Finance

Invoice financing can release the cash tied up in your debtor book and has the advantage of growing as the business grows post transaction.


Cash Flow Loan

If you are acquiring a profitable business, debt finance alone is often not enough and you may need a funder that can bridge the gap by providing an additional cash-flow loan or acquisition finance loan.

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

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