| Leveraged buyout | Acquisition that is funded through a combination of equity Finance & debt finance. Cash flows or assets of the target are used to secure & repay the debt. Their purpose is to allow Co.’s to make large acquisitions without having to commit a lot of capital |
| Institutional buyout | When an institutional investor acquires a controlling interest in a separate Co. The Provider will be managing the funds created by institutional investors such as pension funds, banks & insurance Cos. Institutional buyouts are opposite of MBOs, in which a business's current management acquires a large part of the Co. Thus, in IBOs new managers are sent to manage the Co. Typically, investor in an IBO looks to dispose of its stake in Co within a certain time frame. |
| MBI (mixture of old and new management) | = Management buy-in Occurs when a manager or a management team from outside the Co raises necessary finance, buys it, & becomes Co's new management. Management buy-in team often competes with other purchasers in search for a suitable business. Usually, team will be led by a manager with significant experience at managing director level -
The difference to a MBO = the position of purchaser: |
| BIMBO (current management buys co) | = Buy-in management buyout = combination of a management buy-in and a management buyout.Team that buy out Co are a combination of existing managers, who retain a stake in the Co, & individuals from outside Co who will join management team following buy-out |
| Mezzanine debt | When debt finance is being used, Mezzanine debt stands behind senior debt. It is unsecured by assets & does not require a personal guarantee. This layer carries significantly more risk than senior debt, therefore lender can get a higher reward Used to prioritise new owners ahead of existing owners in case of bankruptcy |
| Equity investor loan | |
| Sweet equity (shares issued to managers of co) | The equity share capital in Newco, issued to the managers in a private equity transaction. This can be sold by management team when target is sold, therefore used as a financial incentive in order to achieve a successful exit from target Co. |
| Equity kicker | |
| Good leaver + Bad leaver P.188 | Jargon commonly used in the context of the treatment of shares held by managers on a private equity transaction. They describe the circumstances in which a D ceases to be an employee of Co which in turn condition the value of the Ds’ shares when D’s leave the Co. Good leaverwill usually mean leaving employment on grounds of death, disability, retirement or dismissed “without cause”. What constitutes “Without Cause” is a contentious matter. Bad leaverwill usually mean leaving in circumstances justifying summary dismissal of employee. Therefore, dismissed “with cause” like bad behaviour, performance, taking a new job |
| Drag along RIghtsP.188 | Rights contained in a Co'sArticlesfor a majority of the SHs (usually +75% in nominal value) to accept an offer to buy their shares & to force the remaining 25% SHs to accept such an offer on the same terms as those propose by the Private Equity Provider. Used by Equity Provider to maximise the potential value of its investment thorough the sale of the entire issued share capital rather than for the sale of a majority shareholding. Minority Shareholders will want to negotiate the terms and the events that trigger the Drag Along provision and impose restrictions on the timing and the adequate form of consideration. It is unlikely that even if the Equity Provide holds a 75% majority of the shares, it will force the whole management team to sell as this would be unattractive to a... |
