A Leveraged Buy-out
is the purchase of a company and/or its assets using the company’s assets to secure loans that are used to pay the seller. All Valbridge Trust deals utilise LBO structures to at least some extent in order to maximise the shares that the management team receives. In South Africa, these LBOs need to be carefully crafted in order not to fall foul of Section 38 of the Companies Act [No financial assistance to purchase shares of company or holding company]. By definition this requires the transfer of all assets and the business into a new company.

A Management Buy-out
is an LBO where the business’s incumbent management drives the process and so acquires a substantial portion of the shares, often for a disproportionately small contribution to equity capital.

A Management Buy-in
is an LBO where outside management drives the process.

A Combined Management Buy-out and Buy-in
is where a team consisting of both incumbent management and outside management is formed to drive the LBO process. This is particularly apt where the target business has been a cost centre of a larger organisation and the incumbent management therefore possibly lacks some of the entrepreneurial or commercial skills necessary for a successful deal. Valbridge Trust has put together several very successful MBO/MBI teams and maintains a database of potential “jockeys” with the requisite entrepreneurial and commercial skills to complement incumbent management, if necessary.