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Leveraged Buyout (LBO)

In Leveraged Buyouts (LBO) transaction is mostly financed with debt, which is assured with loans.

The purpose of LBO is to make bigger acquisitions possible without having to commit a lot of capital. (usual ratio is 70-90% of debt and 10-30% of capital).

Role of Publikum Korpfin in the procedure of leveraged buyouts (LBO):

  • Analysis of shareholder structure and strategy preparation to acquire the target;
  • Analysis and valuation of the target;
  • Analysis of financial capability for LBO preparation and execution;
  • Advise on financing and structure of the LBO;
  • Assistance in gaining financing for the LBO;
  • Analysis of the tax domiciles for the management’s holding company;
  • Negotiation with larger shareholders for their stakes in the target;
  • Preparing the public tender for the target takeover;
  • Ensuring the regulatory requirements are met;
  • Carrying out and coordinating the take over;
  • Reporting about all take over activities.

Types of leveraged buyouts are:

Management Buyout (MBO)

Is a type of LBO acquisition where the acquiring group mostly consists of a company's existing management. Management of the company usually decides for an MBO when they see an opportunity to take possession of the company and benefit from the extremely good future prospects (having access to inside knowledge) for the target company.

Thus they expect to maximize their financial benefits via active ownership in the company they manage. Due to large capital requirements in this type of venture, sources of financing used are usually mostly debt sources and private equity funds;

Management Buyin (MBI)

It happens when the acquiring group consists of outside management. In majority of cases MBI's occur when the target company does not operate so as to capture and fully benefit from its resources and/or does not utilize its potential to grow.

Outside management usually possesses the needed industry knowledge and management skills to assure that the company will be fundamentally more successful in the future and are willing to invest in the company. Usually financing is secured via own funds as well as a private equity or debt providing partner;

Management –Employee Buyout (MEBO)

It happens when role of the owner is taken over by management and other non-management employees. Employees join the acquisition management team in the buy out and it is expected that with the co-ownership the motivation of the employees will be higher as well as their loyalty to the firm.