Bimbos good for business

WHILE the management buy- out market is making steps towards recovery, the prospects for buy-ins continue to look bleak, writes Roger Trapp.

Since there is generally a greater risk in backing people unfamiliar with a business, this is not surprising. But Chris Ward, head of the buy-out team at Touche Ross, the accountancy and management consultants, claims the market has picked up in the last six months after two rather subdued years.

He points out that MBOs have made up a substantial proportion of mergers and acquisitions lately, albeit on a much smaller scale than in the late 1980s. And with many feeling that the recession is at least bottoming out, there are signs of people seeking opportunities.

This gives rise to the buy-in management buy-out (Bimbo), whereby an outsider, usually an individual, spots an opportunity and gets close to the incumbent management before approaching the owner with an offer. As a result, says Mr Ward, 'buy-in people are being seen as a catalyst to buy-outs'.

He adds that he has noticed a large increase in the number of such people approaching his firm, many of whom have already identified the companies they want to buy. 'There are not many pure buy-ins with a completely new team at the top. Most get the incumbent management in,' he says.

This, he suggests, produces a good combination. The existing management may have been concentrating so much on keeping the business going that it ignored strategy, while the newcomer is likely to be lacking in the operational knowledge that makes backers wary of genuine buy-ins.

The trend of looking at prospective buy-out teams from the investors' point of view sometimes results in bringing in outsiders to bolster an existing management team, or replacing those not felt to be suited to the punishing regime that will follow a successful deal. Typically, an executive chairman or chief executive will be added to a team.

'You've got to have a good team. There's no room for passengers. It's no good throwing away the transaction because of weak links,' says Mr Ward.