MBIs take significant research, preparation and planning to succeed, and a fair degree of luck too! They are considered to be more risky than MBOs given the lack of knowledge, generally, of the target company by the MBI candidate who, whilst usually having industry experience, does not necessarily have the in-depth knowledge of the company and clients of the target, or support from the existing management team. Trying to find the right business, of the right size and in the right market is hard enough, but trying to find one that the vendors will consider selling at the right price at that particular time, can be a needle in a haystack!
Many private equity funds will not look at MBIs at all. The likelihood of financial failure of an MBI is far greater than with an MBO given the lack of knowledge of the target. We will look at MBIs, but only for experienced CEOs with detailed experience in the target's market, and who are also prepared to work in a committed way alongside us. We will look to reference the MBI candidate at the outset to ensure previous results follow from their direct management.
In addition, it is important that the MBI candidate is prepared to make the deal more of a BIMBO, involving some of the existing team buying into the equity. This lessens the overall risk associated with the deal and brings together knowledge of the business with external management expertise.