LEVERAGED BUYOUTS
 
1. SELECTING A BUYOUT SITUATION

A. PROVEN EARNINGS PERFORMANCE

B. AVERSION FOR CAPITAL INTENSITY

C. MUNDANE PRODUCT LINES

D. STRONG MARKET POSITION (SALES)

E. FINANCIALLY ASTUTE MANAGEMENT

F. MANUFACTURING COMPANIES PREFERRED

G. CLEAN BALANCE,SHEETS

H. ASSET REDEPLOYMENT POSSIBILITIES

I. RESALABILITY OF BUSINESS

J. SIZE OF CANDIDATE

 
.....THE PURCHASE OF ASSETS OR STOCK OF A PRIVATELY-OWNED COMPANY OR A SUBSIDIARY OR DIVISION OF A PUBLICLY HELD COMPANY WITH A SIGNIFICANT AMOUNT OF DEBT AND VERY LITTLE OR NO EQUITY CAPITAL.

 

2. PARTICIPANTS

A. INDIVIDUAL ENTREPRENEURS

B. WEALTHY INDIVIDUALS AND FAMILIES

C. FORMER OWNERS

D. INCUMBENT MANAGEMENT

E. EMPLOYEE GROUPS

P. INVESTOR/OPERATORS

G. INVESTMENT BANKERS

H. VENTURE CAPITAL COMPANIES

I. INSURANCE COMPANIES

J. COMMERCIAL BANKS AND FINANCE COMPANIES

K. MERGER INTERMEDIARIES

  3. ROLE OF SPECIALISTS

..... INDIVIDUAL INVESTORS, INVESTMENT GROUPS, INVESTMENT BANKERS

(1) SEEK OUT COMPANIES FOR SALE

(2) SELECT APPROPRIATE COMPANIES

(3) NEGOTIATE PRICE

(4) NEGOTIATE TERMS

(5) NEGOTIATE CONDITIONS

(6) PLACE DEBT AND EQUITY

  4. LEVELS OF FINANCING

A. SECURED LENDING (50%) ..... BANKS, FINANCE COMPANIES (PARTICIPATING LOANS

... BANKS...(AR, INUTY)

... FINANCE CO'S ...(EQUIPMENT)
 

B. SUBORDINATED DEBT (25%)

..... APPROXIKATELY 25% OF PACKAGE

..... JUNIOR CLAIM TO BANK LOANS

..... INTEREST HIGHER THAN BANK DEBT

..... USUALLY HAS EQUITY KICKER (CONVERTIBLE, WARRANTS, OPTIONS)

C. EQUITY (25%)

..... MAY INCLUDE SOME PREFERRED STOCK

..... MGT AND DEAL MAKERS PUT UP 5-10% OF EQUITY BUT GET 30-40% INTEREST

..... PURE EQUITY INVESTORS PUT UP 90-95% BUT GET 60-70% INTEREST