Leveraged Transactions (LBO/MBO)

The cost of debt financing is usually lower than the cost of equity. As a result, outside buyers or management teams often approach banks to request to finance part of their LBO/MBO transaction with debt. The ratio of equity to borrowed funds in a transaction varies considerably, depending on the strength of the balance sheet, stability of cash flow, equity capital from management, etc. It is occasionally possible to use as much as 100% of the offering price with debt.  This debt financing (known as the loan facility) is highly detailed, both in the way the transaction is structured (the terms) as well as collateral requirements.

KENDA Capital Management has experience in structuring the following types of transactions to finance LBO/MBO deals:

• Bridge Financing — using a short-term loan, repaying with proceeds from the sale of company shares;
• Leveraged Buy-Out (LBO) — as discussed, investors’ acquisition of companies using borrowed funds;
• Management Buy-Out (MBO) — as above, inside management buyout using borrowed funds (as a form of LBO).

KENDA Capital Management, with its focus on LBOs/MBOs, provides the following services to its clients:

• Preliminary analysis of the target company (market position, competitive advantages, degree of financial stability, investment prospects of the business);
• Comprehensive financial due diligence, identifying and minimizing risks of the company;
• Development of a financial model, analysis of the optimal capital structure;
• Assistance in structuring and preparation of the transaction;
• Participation with outside counsel in drafting and negotiating key legal agreements.