What is a Management Buy-In?
Unlike a management buy-out where ownership of the business moves to the current management team, a management buy-in involves an outside management team taking over the business. This is usually done in conjunction with an investor such as a venture capitalist who will provide the funding required to purchase the business from the existing owners.
When Does a Management Buy-In Take Place?
A management buy-in typically comes about when a person or organisation with money sees a business which it reckons could perform much better if a different or more experienced management team was in place to run it. These external management teams are often headed by a person who has significant experience in running similar businesses to the one being taken over.
In most cases, a management buy-in occurs in one of two ways. The first way involves a management team approaching wealthy individuals, banks or venture capitalists and try to convince them to provide the funding to complete the deal, attempting to convince them that replacing the existing management with them will produce significant returns. The other way is where a wealthy individual or venture capital firm itself identifies a struggling company, or at least one which it believes is not maximising its potential, and attempts to take control and instil a manager or management team of its choosing to run it. This could be a team with which the venture capitalist firm has already had success with in turning around a business in the same or similar industry to the one being acquired. A classic example is a mining/natural resources company which finds a resource but then struggles to make the step up from an exploration company to a producer which can properly exploit the deposit, as the management team are primarily geologists who specialise in finding resources and have little or no experience in managing a working, profitable mining operation or managing a project of such a scale.