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By far, the most common deal type of PE firms is the Leveraged Buy-Out (LBO). This is where a PE firm will utilize a series of different types of loans, along with their own equity to finance a transaction. A Management Buy-Out (MBO) is a management-led LBO, where management raises funds through one or more PE Firms, along with their own capital to finance an acquisition. A BIMBO is a Buy-In MBO, where outside management targets a company for an acquisition, with backing from a PE Firm and takes over managing the company post-acquisition.
During much of the 80's, LBO's were used to finance mega deals with as little as 10% equity contribution by PE Firms. The degree of leverage has been steadily decreasing and post-recession levels are now often below 50% debt, which has lowered the risk profile of LBO financed companies considerably. There are many other types of PE deals as well. Some PE Firms focus on PE Recapitalizations, where a founder or majority owner aims to sell part of the company to take "some chips off the table." These can be structured as either minor or major equity positions by the PE Firm. Others specialize in providing mezzanine capital, which is a form of subordinated debt or preferred shares. Still others provide growth capital to fund a company's growth strategy, which may be in the form of either debt or equity. Others focus on only distressed or turn-around investments, public company spin-offs, etc. Next... Financial engineering vs operational improvement |