Management buy-in financing options

How to fund a management buy-in purchase

If you’re considering being part of a management buy-in (MBI) or you’ve decided to sell your own business to an incoming management team, there are several ways in which the transaction can be financed.

Equity funding, mezzanine finance, and debt finance are all ways to fund an MBI, so let’s look at these in a little more detail.

Equity finance

Management buy-in finance often includes equity finance as a standalone solution or as a supplement to debt financing. The funding might be provided by angel investors, for example, or venture capitalists. As well as securing the necessary funds, a significant benefit of equity finance lies in gaining access to investor business expertise.

Mezzanine finance

Mezzanine finance combines equity and debt finance options, which means the lender can recoup their money by taking equity in the company should it default on repayments in the future. This type of funding can offer higher lending levels when compared with equity or debt financing alone.

Debt finance

Various forms of debt financing are appropriate for funding a management buy-in, including asset-based finance and business loans.

Asset-based finance for an MBI

Using existing assets to fund a management buy-in can generate significant sums. Releasing the value held in balance sheet assets, such as unpaid invoices, heavy machinery, or property, via a form of asset-based lending may be a good option for asset-rich companies.

As an example, you could leverage the high value locked inside an owned property via a commercial mortgage and generate sufficient funds for the buy-in from one option alone, or use high-value machinery assets.

Additionally, invoice finance uses the value of your sales ledger to release cash and may be used as a supplementary form of MBI financing. It’s a facility that grows with the business - as you issue more invoices, the amount of funding available grows, providing a stable financial base during the transitionary period and beyond.

Business loans to fund a management buy-in

Business loans can also be used to finance an MBI. They offer a fixed repayment schedule for certainty of budgeting and can be secured or unsecured.

• Secured loans: a secured loan reduces the risk for the lender as you have to provide collateral. This opens up access to larger loan amounts or better loan terms in general.
• Unsecured loans: unsecured loans don’t require collateral to be put forward so the lender is more likely to offer lower amounts as their risk is greater.

An unsecured loan is still a good option for financing an MBI in full or in part, however, if few assets are available. It’s also typically faster to obtain as there are no assets to value.

Finding the right MBI financing option

The complex nature of a management buy-in makes specialist support essential when considering financing the deal, which is where we can help. We’ll conduct a whole-of-market search to find you the best deals.

UK Business Finance are trusted independent commercial finance brokers and we offer our services on a free-of-charge, no-obligation basis. Please contact one of the team to find out more.