Management Buy In & Management Buy Out

Management Buy In and Management Buy Out

What is a Management Buy In?

When a manager or managers from outside the company acquire a (part of) a company, then one speaks of a Management Buy In. After the acquisition, the new owner / owners take charge of the company's management. This type of buyer does not always have enough own resources, so such an acquisition is usually  supported by funding from investors, bank loans or even crowdfunding.

What is a Management Buy Out?

When an existing shareholder sells his / her interest in the company to one or more employees (mostly members of the Managemen Team), then one speaks of a Management Buy Out. This type of transaction often occurs in family businesses, where the company is transferred to family members already employed.

Acquiring an online business via a MBI or a MBO

A Management Buy Out is a way of acquiring which is easier for all parties involved than a Management Buy In, because the acquirer has often been involved with the company for years and knows the business inside out. Unlike a MBI, the buyer knows exactly what he / she acquires and what the future expectations are. Because of this familiarity with the business, financing by external parties is usually also easier than in the case of a Management Buy In.

On the other hand, in practice, we more often encounter a Management Buy In. This way of transferring a company usually makes the buyer lag on essential knowledge about the company. It is therefor advisable to execute a very thorough due diligence before any online business is acquired and don't forget to contract the made agreements into detail.

Partial acquisition of an online business

It is of course also possible to acquire only part of an online business. We often see this with entrepreneurs who have grown their online business themselves into a stage where serious turnover is generated and more managerial skills are expected. Through a Management Buy In,  a second entrepreneur can enter the company with the required set of skills that he may have gained from a former employer.