What is a Management Buy-In?

A management buy-in is a strategy that some investment groups use in order to take over a company and put new managers in charge. With this type of strategy, a private equity fund or hedge fund will use investor capital to purchase the majority of shares in a public company. At that point, the fund puts a new management team in place in the company that has been taken over. The point of this strategy is to improve management in the business and make it more profitable. This type of strategy can be very beneficial for investors of private equity funds and hedge funds.

Many times, companies that are publicly traded do not perform as efficiently as they could. Sometimes, the issue is the quality of the upper-level executives and management team in the company. By utilizing a management buy-in, many of these companies might be improved.

There are a number of investment funds, such as hedge funds and private equity funds, that look for companies that are not operating efficiently. These funds will try to find companies in which they can buy a large number of shares with the plan of taking over the company. When this happens, the fund becomes the new effective owner of the company.

At that point, the fund will often put a new management team in charge. The hope is that by putting new company managers in place, the business can become more functional. Many times, a management buy-in has resulted in completely changing the culture of a company, and making it more profitable in the long run.

In many cases, the hedge fund will decide to take the company private. This involves taking it off of the stock exchange. At that point, the managers may change the culture of the company and attempt to make it run more smoothly. In the future, the fund may decide to take the company public again and make a large amount of profit from the initial public offering.

Investors in a management buy-in are generally very wealthy individuals. In order to get involved in a management buy-in, investors have to have a large amount of money that can be invested for a long period of time. Without being able to set aside money for an extended period of time, the investor would not be able to realize a large profit from the eventual turnaround of the company. This means that a management buy-in is not a good option for every investor.