An MBO (Management Buy Out) is a business acquisition made by the internal management team of a target company, while an MBI (Management Buy In) is the acquisition of a company by an external management team.
The current management of a business undertakes an MBO if the organisation is divesting a business segment. It could also take place if the owner of a business is retiring and the management is convinced about the growth prospects of the business. An MBI is undertaken by a group of entrepreneurs or a strong outside management team. This team identifies underperforming businesses in its sector and buys the business that it thinks it can resurrect through its skills and expertise.
In many cases in order to fund an MBO you will require external funding, you can receive the required funding through Private Equity or financial institutions. However, you need to decide on the right Private Equity partner, so that you get a funding package that is enough to meet your cash requirements and has flexible repayment terms. In most cases both MBO and MBI teams will be required to make a capital investment as individuals, this demonstrates commitment and confidence to external funders.
Mounting an MBO or MBI is a complex task and needs to be dealt with professionally by advisors who have experience in that particular area.