Could a BIMBO be the answer?

What’s a BIMBO?

A BIMBO is a buy-in management buy-out that combines characteristics of both a management buy-out and a management buy-in. A BIMBO occurs when existing management, together with outside management, decide to buy out a company. The existing managers represent the buy-out portion while the outside management represent the buy-in portion.

How would it work?

BIMBOs are normally a type of leveraged buy-out - the acquisition of a company using a significant amount of borrowed money, e.g. bank and/or other loans, to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for these loans.

Tip. A new holding company (Newco) is usually created to purchase the company being acquired from the existing shareholder. The old and new management team become the shareholders of the new company. This structure gives the best defence against a challenge that the current directors have acquired employment-related securities at a discount because all the shareholders of Newco acquire their shares as founders and subscribers at a value that cannot be in excess of the amount subscribed.

Example. Director shareholder A wants to leave Oldco. Directors B and C want to buy him out but don’t have any marketing expertise so want to bring in D and E who will also buy in to the company. Newco is incorporated with B, C, D and E as founder director shareholders and Newco purchases the shares in Oldco from A by adding their own finances and taking out bank loans to Newco.

Advantages

A BIMBO combines the advantages of both a buy-in and a buy-out. The transfer will be made much more efficiently and without disruption because the existing members of management are already familiar with the business. External management offer an influx of new ideas, experience and contacts to revitalise the company and fill in areas of need be it marketing, operations management or finance.

Disadvantages

Potential conflict. For a BIMBO to work, new and existing managers must get along. New managers will likely have new ideas that they wish to implement right away while existing managers may wish to protect their own turf. This can result in conflict and employees taking sides. Conflicts between management may distract from the core business and may mean that a company doesn’t run as intended.

Additional debt. Like standard management buy-outs, BIMBOs often involve an increase of debt on the balance sheet of a company. If this is something that company is considering you need to be careful that the fundamentals of the business are adequate enough to service this debt and not cause financial stress for the company.