What are the different types of transaction?

What are the different types of transaction?

Management buy-in (MBI)

An MBI is the acquisition of all or part of a company by one or more persons, external to the business who will take over the control of the company themselves following the acquisition.

Management buyout (MBO)

An alternative deal structure is a management buyout or MBO which is an acquisition of all or part of a company by the current management (and possibly other staff), either with outside financing or otherwise. The difference therefore between this type of transaction compared to the MBI is whether the company’s buyer was already in the company prior to the acquisition.

What is a buyin management buyout (BIMBO) ?

A buyin management buyout is a transaction where an external party, often a private individual buyer, joins forces with the management team of the business in question to form a “super team” to drive the purchase of the business from the existing owners. The external individual invests their own capital and often brings a different or additional skill set to that which the internal management team already possesses. Often the external party will act in a Non Executive capacity, steering the Board and strategy but not becoming too involved in running the business; rather they will leave the management team to handle the day to day operations.

Full sale

A full sale is a transaction which involves the owner selling 100% of the shares in the business.

Partial sale

A partial sale is a transaction which involves the owner selling less than 100% of the shares in the business. This sort of transaction can work well for a private buyer because funders are, in principle, keen to back a business where a new and an existing shareholder come together as one to make a new team. This is perceived to be a powerful mix, a bit like 1+1=3.

An asset sale

An asset sale is a transaction whereby the seller retains possession of the legal entity and the buyer purchases individual assets of the company, such as equipment, fixtures, leaseholds, licenses, patents/trade marks, customers and stocks. The buyer does not assume responsibility for any liabilities from the date of the transaction.

A goodwill sale

A goodwill sale is one where the price paid for the business is higher than the sum of the net asset value of all of the assets purchased less the liabilities assumed in the acquisition process. Goodwill is the element of price over and above the net asset value of the balance sheet at the date of the transaction.

A distressed sale

This is a business where the financial situation has become increasingly difficult and might even have slipped into a loss making situation. Often, the issue is not so much profit or loss rather more, whether the business has enough cash reserves to continue to meet it’s debts as they fall due. This could be due to a number of factors but essentially, it is a situation where a new buyer is sought to ensure the future trading can continue. Often this sort of transaction will be one where a limited price is paid for the assets and goodwill of the business on the basis that the liabilities are taken on by the new buyer but more positively, jobs and the site will normally be saved and trading can continue.