BIMBO

BIMBO
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BIMBO (Buy-in management buy-out) is the combination of a management buy-out and a buy-in. (Watson D., Head A. 2007). Management Buy-Out involves acquisition of an equity stakes in an existing company by its existing management.

Management Buy-In is taking place when company is being purchased by new management (Pike R., Neale B., 2003).

In the case of BIMBO a company is acquired by existing management joined by new, key directors or managers. The main advantage of this option is that it may help to increase the quality of management as it provides new member of the team with knowledge and experience of existing management (Arnold G., 2005).

In a comparison to MBO, BIMBO allows us to maintain a continuity of management and it is less risky than MBI. BIMBO, as a combination of MBI and MBO seems to be a compromise solution but it does not stand for that it is always the best option.

BIMBO Limitations

Some limitations of a BIMBO (buy-in management buy-out) include:

• Financing: BIMBOs can be complex and costly to finance, and may require a significant amount of debt or equity.
• Management: BIMBOs often rely on the management team of the target company to lead the business after the buy-out, which can be risky if the management team is not experienced or capable.
• Cultural fit: If the management team does not share the same values and culture as the acquiring company, it can lead to integration challenges and a lack of alignment.
• Legal and regulatory: BIMBOs are subject to a variety of legal and regulatory requirements, which can add complexity and delay to the transaction.
• Due Diligence: In a BIMBO, the acquirer must conduct thorough due diligence of the target company's financials, operations, and management, which can be time-consuming and costly.
• Risk of failure: BIMBO transactions can be complex and risky, and there is a higher risk of failure if the management team is not able to successfully lead the company post-acquisition.

Examples of BIMBO

-*In 2018, the management team of the UK-based toy retailer, The Entertainer, acquired the majority stake (75%) in the company in a BIMBO transaction.

-*In the same year, the management team of the UK-based technology firm, KPMG, led a BIMBO transaction to acquire the majority stake (80%) in the company.

-*In 2017, the management team of the US-based software company, Salesforce, acquired a majority stake (62%) in the company in a BIMBO transaction.

-*In 2016, the management team of the UK-based engineering firm, GKN, acquired a majority stake (67%) in the company in a BIMBO transaction.

Advantages of BIMBO

A BIMBO (Buy-in Management Buy-Out) is a combination of a management buy-out and a buy-in, in which the existing management of a company acquires an equity stake in the company. BIMBO has many advantages, including:

• Improved management control: The existing management team gains control of the company, allowing them to make decisions that are in line with the long-term interests of the company.
• Improved efficiency: The existing management team has a better understanding of the company and its operations, allowing them to make more informed decisions and identify areas for efficiency and cost savings.
• Access to funding: The existing management team may be able to access external funding from banks or other investors, allowing them to make investments in the company that would otherwise not be possible.
• Increased trust and commitment: The existing management team is more likely to stay with the company for the long-term, as they have invested their own capital and are more likely to be committed to its success.
• Improved corporate governance: The existing management team is more likely to adhere to good corporate governance practices, as they have a vested interest in the long-term success of the company.

Other approaches related to BIMBO

In addition to BIMBO, there are several other approaches related to private equity investments that include:

• Leveraged Buyout (LBO) – Leveraged Buyout is a transaction in which a company is purchased by its own management with borrowed funds, making the acquisition highly leveraged. The debt is then repaid by the cash flows generated from the company’s operations.
• Management Buy-in (MBI) – Management Buy-in is an acquisition of a company by an outsider, usually a team with prior experience in the industry. The team takes managerial control of the company and plans to increase its value.
• Secondary Buyouts – Secondary Buyouts is an acquisition of a company by another private equity firm. It can be used to increase the size of a portfolio company or to refinance a portfolio company’s debt.
• Venture Capital – Venture capital is a form of private equity investment in which a venture capitalist provides capital to a startup or early-stage company that has potential for long-term growth.

In summary, BIMBO is just one of several approaches related to private equity investments, which also include Leveraged Buyout, Management Buy-in, Secondary Buyouts, and Venture Capital. Each of these approaches has its own advantages and disadvantages, and the right approach should be determined on a case-by-case basis.

References

• Arnold G., (2005), Corporate Financial Management. 3rd edition. Essex: Pearson Education Limited.
• Pike R., Neale B. (2003), Corporate Finance and Investment. Decision and Strategies. 4th edition. Essex: Pearson Education Limited
• Watson D., Head A. (2007), Corporate Finance. Principles & Practice. 2nd edition. Essex: Pearson Education Limited.

Author: Andrzej Tomasiewicz