SBM Chapter 13 - Planning for the Harvest

Private equity recapitalization

Private equity investors provide additional financing to a business that allows an entrepreneur the opportunity to cash out a portion of his or her investment, while possibly continuing to operate the business.

management buyout (MBO)

A leveraged buyout in which the firm's top managers become significant shareholders in the acquired firm.

bust-up LBO

A leveraged buyout involving the purchase of a company with the intent of selling off its assets.

build-up LBO

A leveraged buyout involving the purchase of a group of similar companies with the intent of making the firms into one larger company for eventual sale.

employee stock ownership plan (ESOP)

A method by which a firm is sold either in part or in total to its employees.

business broker

A professional who assists in the buying and selling of a business.

leveraged buyout (LBO)

A purchase heavily financed with debt, where the future cash flows of the target company are expected to be sufficient to meet debt repayments.

seller financing

Financing in which the seller accepts a note from a buyer in lieu of cash in partial payment for a business.

double taxation

Taxation of income that occurs twice-first as corporate earnings and then as stockholder dividends.

initial public offering (IPO)

The first sale of shares of a company's stock to the public.

harvesting (exiting)

The process used by entrepreneurs and investors to reap the value of a business when they leave it.

opportunity cost of funds

The rate of return that could be earned on another investment of similar risk.