Category: Capital Markets

✦ In Plain WordsIn a hostile takeover the bidder goes around the company’s board, either by offering to buy shares directly from shareholders, called a tender offer, or by trying to replace the directors in a proxy fight. The board can fight back with defenses such as a poison pill, a staggered board, a friendly […]

2.8 Private Equity Fund Mechanics — LPs, GPs & Carry ✦ In Plain WordsA private equity fund is a partnership. The investors, called LPs, supply the money, and the manager, called the GP, invests it and earns management fees plus a share of profits called carried interest. Profits are shared in a set order called […]

✦ In Plain WordsAn LBO model follows the cash. Each year, the company’s free cash flow goes into repaying debt, and at the end the business is sold and the debt is subtracted to find what the owners keep. Two numbers measure success: MOIC, how many times the money came back, and IRR, the yearly […]

✦ In Plain WordsBefore modeling a buyout, you list where every dollar comes from and where every dollar goes. That table is called Sources and Uses, and it is how you rebuild the real price. Enterprise value is the price of the shares plus the debt that must be refinanced, minus the cash acquired, which […]

2.4 Synergies and Accretion/Dilution Analysis ✦ In Plain WordsWhen one company buys another, the first question is whether earnings per share go up or down: up is accretive, down is dilutive. The answer depends mostly on how the deal is paid for. Before synergies, a stock deal helps only if the price-to-earnings ratio paid is […]

2.2 Stock Deals vs Asset Deals ✦ In Plain WordsA buyer can buy a company in two ways. In a stock deal you buy the legal entity itself, with all its debts and past problems, and its tax records carry over. In an asset deal you pick the assets and liabilities you want, and the […]