Financing instruments
Acquisition financing can be done using various financing instruments such as bank credits, loans, equity capital, and mezzanine financing. Each instrument offers specific advantages and promotes financial flexibility. A balanced mix is decisive for the success of a transaction and financial stability.
Types of takeover
Family buyout (FBO)
A family buyout is a type of transaction where one or several family members buy shares of a company from other family members or external shareholders. This may be done to keep the company's management within the family while establishing a clear succession plan.
Management buyout (MBO)
In a management buyout, the current management buys the majority or all shares in a company. This type of buyout tends to be an opportunity for managers to gain greater control and define the strategic direction of the company independently, particularly if the current owner would like to retire from the business.
Management buy-in (MBI)
A management buy-in is similar to an MBO, but means that an external management team buys control over a company. MBIs typically involve companies that seek new inputs or a new direction, with the external management team contributing specific skills or experience that were missing before.
Leveraged buyout (LBO)
A leveraged buyout involves the purchase of a company largely using borrowed capital (debt capital). An LBO aims to maximize returns for investors by using debt. This type of takeover involves greater risks, particularly if the company does not make enough money to afford interest and repayments.
Due diligence
Due diligence serves as protection against potential risks and a way to identify opportunities. In a due diligence process, experts examine annual financial statements, contracts, the corporate structure, IT, tax situation, and further operational processes. An in-depth due diligence is essential to analyze financial, legal, operational, tax, and strategic aspects of a company.
Lenders
Lenders vary from banks to private equity companies to strategic investors. Every lender provides different types of financing and conditions that can be key to the success of an acquisition.
Risks and collateral
Acquisition financing is associated with financial, tax, operational, and legal uncertainties. Lenders often use collateral to minimize these risks. A careful risk assessment is indispensable to protect the investment.
Repayment and refinancing
A solid repayment strategy is also decisive to manage the financial burden. Refinancing options can help achieve better conditions and adjust the financing structure.
