mezzanine and the private equity space

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1、8MezzanineandthePrivateEquitySpaceIthasbeenaroundfourdecadesnowsincethefirstLBOs(leveragedbuy-outs)emerged.Anovelconceptinthe70s,wherebyinvestmentfirmstookownershipofacompany(often100%,butdefinitelyamajoritystake)andfundedtheacquisitionwithonlyasliveroftheirownequityandtherestw

2、ithasyndicationofallsortsofdebtinstruments.Theideawasthattheacquisitiondebtwouldbepaidoff(toalargedegree)bythetimethatthefirmwasresoldorbroughtbacktothepublicmarket.AdefinitionofanLBOcouldthereforebe:Atransactioninwhichaninvestorgroupacquiresacompanybytakingonanextraordinaryamo

3、untofdebtwithplanstorepaythedebtwithfundsgeneratedfromthecompanyorwithrev-enuesearnedfromsellingoffthenewlyacquiredcompany’sassets.Itseekstoforcerealizationofthefirm’spotentialbytakingcontrolofthefirm.Theleveragingupofthepurchaseisatemporarystatependingtherealizationofthatexces

4、svalue.Itallowsforademocraticmeansofownershipandcontrol,i.e.amanagementteamcantakeafirmtothenextlevelorspin-offandfollowitsownindependentcourse.Thetargetmarketforthiskindoftransactionwas:•Privatebusinesseswheretheownerwantedtoexitthebusiness.•Privateorpublicbusinesseswherethema

5、nagementwantedtotakecontrolofthefirmandtakethefirmtothenextstep–laterknownasMBO(managementbuy-out)orwherenewmanagementcamein(MBI–managementbuy-in)whowerelookingforownershipbutlackedtheequityfundingtoacquirefullownershipthatway.•Publicbusinesseswhich,forwhateverreason,hadfallenf

6、romgraceinthepublicmarket.Atalaterstagethatwascomplementedwithbusinesseswhichhadtogothroughsomesortofrestructuringortotallyre-inventthemselves,andwherethepublicmarketsdidn’tshowanycompassionsotherewasaneedforthefirmtogothroughthatphaseinthequietnessofprivateownership(P2P–public

7、toprivatetransactions).Mostofthesefirmsultimatelyendedupbeingrelistedagainaftertheconversionwascompleted,andthefirmcouldfollowitsowncourse.•Generally,companieswithlowlevelsofexistingdebtontheirbooks.•Companieswithquitealotoffixedassetswhichcouldbeusedascollateral.•Sizeablescope

8、forcreatingefficiencies,costreductionsorcreatingvalueb