Key terms

What is the most common type of buyout?

Leveraged Buyout (LBO)

What are the other types of leveraged buyouts?

1. Management buyouts - (MBO's) is a where a key ingredient is bringing in the existing management team (of the target firm) as shareholders. This is also known as a rollover, where management rolls over their equity from the old company into the new company. Usually ranges from 2-5% of total equity. 2. Employees buyout - (EBO's) are when the employees, using their employee stock ownership plan (ESOP) to buyout the companies owners. 3. Restructurings - when a major part of the acquired assets are subsequently sold off to retire the debt that financed the transaction

Statutory Merger

(Lawful merger) occur as specific formal transactions in accordance with the laws/statutes of the states where they are incorporated. Typically Delaware for us firms but may be different for international firms.

What is an acquisition?

A corporate acquisition is the process by which the stock or assets of a corporation come to be owned by the by a buyer.

Run me through the M&A process? (In order)

1. Strategy phase - deciding whether, and if so how, to buy or sell whether as a strategic buyer or financial buyer. 2. Valuation phase - Determining the value of the company. 3. Financing phase - Obtaining the funds, internal or external, to make the deal happen. 4. Structuring phase - Making the proper accounting, financial, legal, and tax designations for the transaction. 5. Due diligence phase - Verifying that the company is what it claims to be and discovering risk exposures material to the transaction. 6. Negotiation phase - Convincing the other party to agree to your terms without jeopardizing the deal. 7. Closing phase - Consummating (completing) the transaction, thereby making it official. 8. Integration phase - Managing post merger operations through stand-alones, integration, and/or divesture.

What is a buyout?

A buyout is a term used to describe a transaction in which an acquirer such as a private equity firm takes all or part of a public company private by purchasing all of its equity and/or assets.

What is a merger?

A merger occurs when one corporation is combined with and disappears (legally) into another corporation.

What is a Nonsurvivor is a merger?

A nonsurvivor is the corporation that legally ceases to exist after the merger.

What is a survivor of the merger?

A survivor is the corporation who legally remains in the merger.

What is a generic term for acquisition?

A transfer of ownership.

What is a hostile acquisition?

Also known as hostile takeover is where the buyer passes the board and management and directs its overtures (proposal) to the targets shareholders. These types of transactions are rare.

What are Friendly acquisitions?

Also known as negotiated acquisition where the buyer makes its overture to the board and management.

What is a leveraged buyout?

Is when all or a part of a companies stock (also known as capital stock) or assets are purchased mostly with debt, resulting in a more levered capital structure. The assets of the target serving as collateral for the debt. Then they use the cash flows of the firms to pay down debt and increase their equity. Think of a mortgage.

What is a generic term for merger?

Merger is a narrow, technical term for a particular legal procedure that may or may not follow an acquisition.

What does merger and acquisition allude (refer) to?

They both allude to the legal structure of a particular deal.