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LBOs / MBOs

Leveraged Buyouts (LBOs)
An LBO is a method of acquiring a company or business using borrowed money. If the business or company that is being acquired generates fixed cash flows, the acquirer (typically, the sponsor providing equity) can purchase the business or company for relatively little cash. For this reason, the borrowed funds are considered the “lever” that multiplies the return on the purchaser's funds, which are constrained. In general, the ability to borrow large funds for this purpose relies on the stability of the cash flow the business generates. So-called buyout funds, which maximize returns by aggressively multiplying their borrowings, use LBOs as their principal acquisition method.
Management Buyouts (MBOs)
MBOs involve the acquisition by existing corporate management of a company's shares or operations. As the existing management team typically has a limited amount of cash available, MBOs generally require that funds be raised to acquired an operation. For this reason, an MBO may take the form of an LBO. In the event that borrowed funds alone are insufficient, the management team may offer equity to a collaborative sponsor, such as a buyout fund or partner.
In recent years, this method has been used more frequently by listed companies that are delisting and to enable the succession of owner-operated companies.

MBO Structure

First Step

Establish new company to serve as the conduit for share acquisition.

Second Step

The new company accumulates shares from existing shareholders.

Third Step

MBO Benefits

Existing wners
  • Corporate business partners
  • Realizes profit for the founder
Successors
  • Enables share transfer with relatively little cash on hand
  • Allows creation of the ideal shareholder structure
Other shareholders
  • Provides the opportunity to sell shares that are relatively illiquid
Management team
  • Prevents shares from being scattered and stabilizes management
Corporate business partners
  • No impact on operations

DBJ's MBO-Related Financing Services

Financial Advisory Business(Financial Advisor)

Basic Roles

As a financial advisor, DBJ ties together all MBO-related details

Specific roles
  • Consider optimal capital structure
  • Consider scheme
    (operational transfer, etc.)
  • Support fundraising
    (investment, capital injection)
  • Conclude basic memorandum of understanding
  • Draft various agreements
  • Support establishment of new company
  • Consider business plans
  • Create basic memorandum of understanding and memorandum of agreement among shareholders
  • Overall schedule management
  • Final fundraising
  • Process concluded agreements
  • Closing

Investment and Loan business(Lending, Mezzanine, Investment)

Basic Role

Streamline financing, if possible use mezzanine financing with preferred shareholders.

Specific roles
Loans Mezzanine, Investment
  • Perform preliminary study and analysis (screening)
  • Submit letter of intent
  • Basic loan conditions (term sheet)
  • Adjust syndicated loan structure (arrange)
  • Conclude loan-related agreements and execution procedures
  • Perform preliminary study and analysis (pre due diligence)
  • Negotiate and adjust investment conditions
  • Conclude basic agreement between management and core shareholders
  • Perform core study and analysis (due diligence)
  • Agreements between shareholders
  • Conclude and execute investment-related agreements

Case Study

Hoyo no Yado Himi

DBJ formulated an investment and loan scheme using project finance procedures and provided the funds necessary for Hoyo no Yado Himi to purchase the facilities it required and to ensure continuity of business.

Details

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