LBO Terms and Definitions A leveraged buyout (LBO) is the acquisition of a target company that is funded using a significant amount of debt. An LBO transaction typically occurs when a private equity (PE) firm borrows as much as they can and funds the balance with equity. An LBO model is built to enable investors…
What is a Secondary Offering? In finance, a secondary offering is when a large number of shares of a public company are sold from one investor to another on the secondary market. In such a case, the public company does not receive any cash nor issue any new shares. Instead, the investors buy and sell…
What is a Seasoned Equity Offering (SEO)? A Seasoned Equity Offering (also called a Follow On Offering) refers to any issuance of shares that follows a company’s Initial Public Offering (IPO) on the stock market. The issuance, therefore, is by a company that is already public and is coming back to the market to raise more money….
What is a Reverse Termination Fee? A reverse termination fee is also known as a reverse breakup fee. It refers to the amount of money paid to the target company after the acquirer backs out of the deal or the transaction fails to complete. Usually, the reverse termination fee is included in the acquisition agreement,…
What is an Equity Kicker? An equity kicker is an equity incentive where the lender provides credit at a lower interest rate and, in exchange, gets an equity position in the borrower’s company. An equity kicker is structured as a conditional reward, where the lender gets equity ownership that will be paid at a future…
What Does Synergistic Mean? The term synergistic is derived from synergy, which refers to the benefit that results from the merger of two agents who want to achieve something that neither of them would be able to achieve on their own. The term is mostly used in mergers and acquisitions (M&A), where two companies merge…
What does Consideration mean? The term “consideration” is a concept in English law that refers to the price paid in exchange for the fulfillment of a promise. The court in the case of Currie v Misa defined consideration as a right, interest, profit, detriment, loss, or responsibility. Its main characteristic is that the promissor must…
What is Control Premium? Control premium refers to an amount that a buyer is willing to pay in excess of the fair market value of shares in order to gain a controlling ownership interest in a publicly traded company. A buyer who pays a control premium gains access to the firm’s cash flows, day-to-day operations,…
What is a Non-Binding Offer? A non-binding offer, also referred to as an indicative offer, is used in a sales process to establish the terms of a deal between the seller and the buyer. It serves as an “agreement to agree” between the two parties. Through the document, the buyer expresses an interest to acquire…
What is a Fundless Sponsor? A fundless sponsor is an investment fund that lacks committed equity capital required to complete acquisition transactions up front. Unlike private equity firms that already possess equity capital to finance transactions, fundless sponsors must raise equity and debt financing on a deal-by-deal basis, after signing a Letter of Intent (LOI)….
