Our mission at Beauhurst is to track every fast-growing and ambitious company in the UK. We now use eight different company events as ‘triggers’ to start collecting and curating deep data profiles about businesses. One of these tracking triggers is a Management Buyout (MBO) or Management Buy-in (MBI). MBOs and MBIs provide a useful indication that a company is likely to grow, as new owners and more incentivised managers are often able to fast-track a company’s growth. As such, we classify MBOs and MBIs as a trigger of growth rather than an exit event. In this post, we explore the differences between the two events, our definition of each and the top companies that have gone through an MBO/MBI and prospered.
What’s the difference between an MBO and MBI?
An MBO occurs when a company’s existing management team purchases the majority of shares from the company’s shareholders to obtain a controlling interest. In this event, the management team usually purchase all of the shares in the company from its shareholders, but only require a majority of the shares to take control. A main benefit of undertaking an MBO is that since management already have an in-depth knowledge of the business, as owners they are able to quickly implement organisational changes that they have planned for years in advance, to accelerate the company’s growth. Existing clients and partners would also be reassured about the business’ future activities as management remains the same. MBOs can be very expensive to fund however, with the management team usually requiring financial backing from banks or private equity firms.
Contrastingly, a Management Buy-in (MBI) is where a team from outside the company purchases a controlling stake in the company and replace the existing management in the process. MBIs are similar to MBOs in the sense that management gains a majority ownership of a company from previous shareholders. The difference between them is that MBOs involve a company’s current management team purchasing a controlling interest in the company, whereas an MBI involves an external management team taking a controlling interest and replacing existing management.
How we define an MBO/MBI:
We consider an MBO/MBI to occur when management – either existing or incoming – take a majority stake in the company through the transaction. In some cases, a company may claim that they’ve been acquired, but when we’ve looked more closely at the transaction we can see that they’ve actually gone through an MBI. On the other hand, we’ve found that some deals that were publicly announced as MBOs/MBIs do not meet our definition because management didn’t actually take a stake.
Top companies who have held an MBO
A good representation of how an MBO/MBI effectively indicates future growth can be seen by examining the change in the net worth of companies one year after they undertook an MBO/MBI. We have tracked 1521 UK companies that have gone through an MBO/MBI since 2011, 142 of which experienced a £1m increase in net worth in the following year. In this post, we’ve profiled some of the top performing companies one year after an MBO/MBI was conducted.
de Poel was a staffing and recruiting company providing outsourcing and temporary staffing solutions to a range of public institutions and private companies. de Poel completed a multi-million MBO in September 2016, led by managing director Andrew Preston and the senior management team. Their financial statement prior to the MBO reported a net worth of -£20.54m. In their December 2016 financials – just three months after the September MBO – de Poel’s net worth had sky-rocketed to £16.87m, increasing over £36 million from the previous year. This was the first year where de Poel achieved a positive net worth figure, indicating the MBO had a key role in improving its financial performance. Operating profit also significantly improved from -£2.83 million in 2015 to -£35k in 2016. de Poel was acquired in 2018 and has now been rebranded to Geometric Results International (GRI).
On the Beach
Founded in 2004, On the Beach is an online retailer of summer holidays. On the Beach underwent a £73 million MBO in October 2013, with private equity firm Inflexion leading the buy-in. Its financial performance in the year following the MBO improved significantly, from a net worth of -£26.7m in September 2013 to £95k in 2014. This staggering improvement suggests the MBO had a significant impact on the running of the company. Since the MBO, the company has floated on the London Stock Exchange for a hefty sum of £240m.
DSM/SFG Group is a Birmingham-based consumer services company. It operates St Francis Group, a property development and investment company, and DSM Demolition Group, an industrial services business. DSM/SFG underwent an MBO in April 2017, backed by private capital group Metric Capital Partners, where DSM and SFG management teams became the new owners, replacing the family shareholders who had owned DSM/SFG since 1988. DSM/SFG’s net worth in 2018 – the year following the MBO – jumped to £32.3m, from £6.84m in 2017. This was the largest year-to-year increase in their net worth, indicating that the MBO triggered this significant improvement.