Описание
Background to private equity in the UK
company disposing of a non-core subsidiary, or one or more private sellers
looking to unlock the value in their company (e.g. where there is no obvious
successor to inherit a family business). Traditionally, such transactions were
often sourced by the management teams themselves, who then took the Target
business to the market for funding through retained advisers; however, as the
private equity industry developed, it became more common for private equity
firms to approach the Target, or for the seller(s) concerned to instigate the
transaction, with management involvement being minimised until later in the
process (see section 2.4 below).
(b) Management buyins (MBIs)
An MBI is identical to an MBO save that the management team that will invest
alongside the private equity funds, and run the Target business, has not previously been involved in the management of the Target. The lucrative profits
earned by management teams from successful MBOs led to many individual
managers researching their own industry sectors, with a view to identifying
potential acquisition targets which they could then run with a deal funded by
private equity. Individuals who have previously been successful in an MBO
often then move on to look for MBI opportunities.
A ‘pure’ MBI (i.e. where there is no involvement of any member of the
management team within the existing business) is now rare in the UK. The
lack of any inside knowledge of the Target business means that there is an
increased risk to the funders of the transaction; even where a comprehensive
due diligence exercise is carried out by external accounting, legal and other
advisers, there is no substitute for experience from within the business. As a
result, many private equity funders refuse to contemplate MBIs at all.
That said, on a buyout, the existing management team is often complemented by one or more managers from outside the business. In many modern
deals in the UK, the team will include a combination of the existing management team and managers from outside the company; such transactions
are sometimes referred to as ‘buyin management buyouts’ (or, affectionately,
BIMBOs) – although such deals are often still simply referred to as MBOs or
buyouts.
(c) Leveraged buyouts and institutional buyouts (LBOs/IBOs)
The expression ‘leveraged buyout’, or LBO, is used to describe a buyout where
significant debt is utilised by the private equity firm in order to fund the acquisition of Target. The expression originates in America, although it has been
used more extensively in the UK market in recent times (particularly as a consequence of the buyout boom between 2005 and 2007 – see section 2.2).
In reality, leverage is used to some degree by private equity firms in all
buyouts to deliver the returns that their ultimate funders expect. In chapter 3,
a typical deal structure is outlined demonstrating how bank debt (and, indeed,
debt investment by the private equity investor) is combined with a relatively
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