What is Buy-In Management Buyout (BIMBO)?
A Buy-In Management BuyOut (BIMBO) is a form of a leveraged buyout (LBO) that incorporates characteristics of both a management buyout (MBO) along with a management buy-in (MBI).
A BIMBO occurs when existing management along with outside managers decide to buy out a company. The existing management represents the buyout portion while the outside managers represent the buy-in portion.
Key Takeaways
- A Buy-In Management Buyout (BIMBO) occurs when an outside management team joins a company (buying-in) while also buying out the existing management team.
- This form of leveraged buyout (LBO) is used to streamline the transition from one owner to the next with minimal interruption in business operations.
- Like all LBOs, there are still risks of disruption, conflicts, and reduced performance, but these can be minimized as the new managers have bought in as owners as well.
Understanding Buy-In Management Buyout (BIMBO)
Buy-In Management Buyout (BIMBO) is a term that originated in Europe to describe a type of LBO that combines new external management with internal management to refresh the direction of the company and streamline operations. A leveraged buyout is the acquisition of a company using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for these loans, along with the assets of the acquiring company.
This strategy offers the combined advantages of buy-in and buyout. The transition can be carried out efficiently, reducing disruption because existing management is already familiar with the business. The management buyout is complemented with a management buy-in, resulting in the influx of leaders with expertise to fill gaps in areas like new product development, marketing, operations management, or finance.
A management buy-in is a corporate action where an outside manager or the management team purchases a controlling ownership stake in an outside company and replaces its existing management team. Conversely, a management buyout is a transaction where a company’s existing management team purchases the assets and operations of the business they currently manage.
Taking Care of a Buy-In Management Buyout
For a BIMBO to succeed, new and existing managers must work harmoniously. Energized new managers may have innovative ideas they wish to implement immediately, while existing managers may resist changes due to a protective attitude towards their existing work practices. Employees might take sides, leading to potential conflicts. Such conflicts are inevitable in all organizations, but they shouldn’t become so pronounced or distracting that they prevent the business from running as envisioned before the transaction took place.
An LBO increases debt on the company’s balance sheet, which must be managed responsibly by the management team. There is a risk that debt service may not be handled smoothly, potentially causing financial stress in the new company. However, since the managers are now owners of the company, they are incentivized to behave like owners, making rational decisions to increase the likelihood of success.
Related Terms: Leveraged Buyout, Management Buyout, Management Buy-In, Corporate Finance.
