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LPC Law Notes Private Acquisitions Notes

Private Equity And Takeovers Notes

Updated Private Equity And Takeovers Notes

Private Acquisitions Notes

Private Acquisitions

Approximately 339 pages

A collection of the best Mergers and Acquisitions* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Mergers and Acquisitions notes available in the UK this year. This collection is f...

The following is a more accessible plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:


Private equity fund” = money to be invested.

  • Variety of sources: individuals , companies, institutional investors (pension funds, banks and

insurance companies).

  • Specialist funds are created where investors agree to provide funds to be invested in particular types of private companies, usually in the form of a Limited Partnership (tax advantages).

  • Usually an agreed internal procedure for approval of opportunities (i.e. min/max investment or stake)

Private equity provider” = investors give money to them by way of a PE fund to invest in deals

  • Makes their profit by successful investment of PE funds

  • Often through fees based on percentage profits of successful investment returns.

  • Will try to maximise profit for the investors whilst minimising the risks of the investment in order to grow its own business successfully and develop a good rep in the private equity market.

Types of investment

  1. Start-up capital (providing financing at the outset of a business);

    1. Investment usually by way of subscription of shares in existing co

  2. Development capital (providing finance for expansion); and

    1. Investment usually by way of subscription of shares in existing co

  3. Buyouts (where finance is provided for the acquisition of a business)

    1. Small management buyout = a direct subscription for shares may be made in the acquiring company.

    2. Large management buyout = will be a substantial amount of debt finance as well as PE so a corporate structure may be created for the acq; and

    3. Large institutional leveraged buyouts = a fairly complex corporate structure will be used to cope with the numerous layers of investment and debt finance.

Management Buyouts
  1. Management buyout (MBO)

Buyout by the existing management team

Through a newco established for purpose of MBO

Share or asset acq – will likely want majority SH

Existing management draw up IM and PE providers bid to fund the deal – existing management expected to fund too so they’re focused on success

Funded by a combo of equity finance by management team and PE provider and debt funding over assets of target

  1. Management buy-in (MBI)

Buyout by an external management team

  1. Buy-in Management buyout (BIMBO)

Combination of both (1) and (2).

Institutional buyout
  • Institutional investors looked for the opportunity themselves and are the driver of the process.

  • Majority of buyouts will be funded by institutional investors, but won't necessarily be an institutional buyout (e.g. if it is existing management driving the process).

  • Hope to acquire majority stake in target – will need potential to generate sig profits

  • PE provider will try to achieve best debt-to-equity mix in order to maximise profit. PE will consider its internal rate of return (how much gain will be achieved on the sale based on projections for the increase in value of the target ). Will depend on how much equity needed: the lower the equity, the greater the gains per share.

  • Debt funding can be secured against target assets

Leveraged buyout
  • Leveraged buyouts are where acquisitions are funded through a significant amount of debt finance (bonds and loan notes).

  • Management will not be driving force but instrumental because of knowledge to maximise profitability of target – will be incentivised to give successful exit (e.g. sweet equity)

  • Management on a LB will be either existing, PE appointed NED’s, or a combo of both

  • Management team will be expected to give warranties in relation to its business plan and information provided by it about the target.


(1) Holding / topco = act as the investment vehicle for all the equity funds (those provided by the PE provider and management team).

(2) Wholly-owned subsid of topco = will undertake the bank borrowing needed to provide the

balance of the acq cost. The actual purchase of the target company may be made by

this subsid,or

[(3) Wholly-owned subsid of the subsidiary = may instead make the purchase of target if that suits the tax and other circumstances of the transaction.]

Senior Debt


Mezzanine Debt

  • Senior debt is the first ranking secured debt.

  • Mezzanine debt is Second ranking secured debt.

  • Mezzanine lenders will not recover any debts until Senior Debt is repaid in full, and has a higher rate of interest than a Senior Debt as it is more risky.

Equity Kicker
  • An equity kicker is a 'warrant' offered to Mezz lenders, which gives them the lender the right to convert its loan into equity shares for par value.

  • This is beneficial as it can convert its loan to equity shares just before the equity investors are going to float/exit (when there is no risk to being a shareholder) and float its shares above the value it would have received had it remained as a debt.

Equity Investor Loan
  • Equity investor lends money to the company rather than (or as well as) shares.

  • May have a high rate of interest:

  1. unsecured;

  2. ranked high;

  3. but tax deductible for the company

Sweet Equity
  • Management pay X amount to take equity in the company.

  • Why is it sweet? Because the management obtain same shares with same value as the equity investors, but the investors have to risk a substantially larger sum of money (e.g. 15m preference shares to the 800,000 equity of the management) to obtain Same amount of return.

Redeemable fixed cumulative preference shares


  • can sell back to the company

  • just before exit or flotation (can’t float preference shares)

Fixed cumulative preference

  • receive a fixed dividend in preference to all other dividends (e.g. 4% p/a)

  • the dividend is cumulative, which means that if the investor does not get a dividend in one year, it rolls over into the next year.

  • fixed because the value of shares never changes (get back what you put in)

Isn't this just a loan?

  • Here's X, at the end of the period pay me back.

  • In the meantime I will get a fixed return of X% p/a

  • Looks like a loan - why not just do a loan?

  1. no tax

  2. no voting rights

  3. makes company look healthier (lender has no rights and...

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