LEVERAGED BUYOUT TIPS

Business Leveraged Buyout & “Free Money”  

Leveraged Buyout Practitioners use “Free Money” also known as Other People's Money or OPM. Why can we call it “Free Money”! Normally funding from banks has interest applied, however, as a Leveraged Buyout practitioner on most occasions we not only use other People's money but often we will pay zero interest.   

Another aspect by using this “Free Money” that other people are glad to lend when they have to dispose of a business, no money raising fees are levied.  Further when this money is used in the acquisition of the business rarely is proof of credit worthiness ever asked for. 

“Free Money” can only be achieved if the seller has confidence in you.  There are various methods of building this confidence one of them being simply to dress correctly.  A good example of a successful Leveraged Buyout practitioners dress code would be for example, how the President of the United States dresses.  His dress code usually includes a good-quality dark suit, black shoes, white shirt a Conservative tie and understated wealth in the form of a quality gold watch, cufflinks with a quality briefcase and pen set. 

Naturally the whole package would include a good manner, unflinching eye contact and confident well modulated presentation. 

When we draw up the financial plan for the acquisition it is known as “the pyramids”. This is because when we, as leveraged buyout practitioners structure the deal the first thing we do these lock in the large amount first and probably the last amount would be the petty cash. Hence the pyramid shape of the transaction. 

Within this pyramid many of the amounts will be included as interest free loans from the seller. What has to be borne in mind is the fact that an LBO transaction using Other People's Money or “Free Money” results from the fact that the seller often has a desperate need to sell due to bereavement, serious health problems plus many other reasons covered in the manual. Often by the time you, as an LBO practitioner meet the seller, he has been trying to offload his business for up to five or more years.  

By structuring an LBO deal we perform an important social functions which essentially are: 

·        relieving the seller of a business that he can no longer cope with 

·        saving the business and all the jobs and it 

·        enabling the business to pay creditors 

·        enriching yourself in order that you can help another distressed business. 

The fact that the seller authorises the use of his money in this matter demonstrates his absolute need to sell under any circumstances. LBO happens in both the small, large and mega industries. Rover was a prime example where for £1 a transaction was confirmed that in actual fact included huge land assets, acres of machinery, stocks of spares and completed vehicles plus a pension fund worth many £millions. 

Leveraged Buyout can be used in almost any circumstances including business, Property, aircraft, ship or almost any medium to large purchase where the seller is willing to participate.