Management Buy In or Buy Out Structured in South Africa

Management Buy In or Buy Out Structured in South Africa are both forms of business takeover where management makes the purchase. A management buy-out is the purchase of a business by its existing management team, whereas a management buy-in is the purchase of a business by an incoming management team. DTC can assist with the necessary developments for your Management Buy In or Buy Out!

Management Buy-Out

A management buyout is a transaction where a company’s management team purchases the assets and operations of the business they manage. MBOs usually occur to take companies private in an effort to streamline operations and improve profitability. A management team pools resources to acquire all or part of a business they manage. MBOs are financed with a combination of personal resources, private equity financiers, and seller-financing.

MBOs can occur in any industry with any size business. They can be used to monetise an owner’s stake in a business or to separate a particular department from the core business.

An MBO is typically a more specific form of a leveraged buyout (LBO) – a transaction in which a company is purchased with a combination of equity and debt, such that the company’s cash flow is the collateral used to secure and repay the borrowed money. Since management teams rarely have the financial resources to buy the target company outright, they generally need to raise debt to finance the buyout.

Management Buy-In

A management buy-in is a corporate action in which an outside manager or management team purchases a controlling ownership stake in an external company and replaces its existing management team. This action can occur when a company appears to be undervalued, poorly managed, or requires succession.

With an MBI, the buyer can choose to buy the shares all at once, but it also happens that the shares are sold step by step to the new owner.

The new owner is usually supported by external financiers. Whether this is necessary depends on the value of the company. In principle, an MBI involves a due diligence investigation. The financial and legal sides of the company are also taken into consideration. In this way the buyer can be sure that he or she will not be faced with any surprises.