What is Management Buying?

John Lister
John Lister
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Businessman giving a thumbs-up

Management buying is a phrase which can be used for a simple takeover of a company which does not change the line-up of people running the firm. Confusingly, it can also be used as a synonym for a management buy-in, which occurs when outsiders take over a company and replace the existing management staff. Both these terms are in contrast to a management buy-out, which is where a company's existing management becomes the owners.

There is some dispute about whether management buying is the same thing as a management buy-in. Those who argue that the two terms have a different meaning believe management buying refers to a situation where an outside company takes a controlling interest in a firm and places its own representatives on its board, but keeps the existing management team.

The more common use of management buying is as another way of writing management buy-in. This is where people from outside a company buy control of running it. Unlike many takeovers, this usually involves people from within the same industry who have a knowledge of the products and services involved rather than investment firms with no specialist knowledge. They would simply see it as a good opportunity and most likely would keep the existing management. The buy-in is also different to a merger or takeover where the firm would effectively cease to exist as an independent entity, though might be kept as a separate company for tax or marketing purposes.

In many cases, a management buy-in would take place where a firm has struggled. The buy-in may be led by people who believe there is potential for the firm to succeed within its industry and that its failings have been due to poor decisions by the existing management. If they are correct, this can mean the takeover proves a wise and profitable decision. There is a risk that staff who remain will resent outsiders replacing previous managers who may have built up goodwill and loyalty, particularly if the new managers appear to act arrogantly.

The contrasting situation is a management buy-out. This is where existing managers take control of the company and become the new owners. This could happen if the company's owners are experiencing financial difficulties and need to find a buyer but are either reluctant to sell to "outsiders" or simply can't find a buyer.

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