How come we use Seller's Excess cash as a source in LBO but not in a M&A deal
How come we use Sellers' Excess cash as a source in LBO but not in a M&A deal
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because you don't know what you're doing - excess cash can be a source of funds in virtually any deal
Seller's excess cash right?
You can use either party's excess cash - target or acquiror
In an LBO, one lever to maximize returns is reducing the sponsor's equity check. Assuming debt is already maximized, using excess cash will reduce the equity check and increase returns. Thus people have more of a focus on cash in an LBO.
In an M&A transaction, the excess cash from either B/S can be used to fund the acquisition. In a traditional accretion/dilution model for a stock-for-stock merger, the excess cash may not be used given it is an all-stock deal. Perhaps that analysis is what you're looking at to raise this question. In a cash acquisition, the excess cash from either side could be used as a source of funds rather than additional debt or other sources. The sources and uses in an all-cash M&A deal look more similar to an LBO than in an all-stock deal.
Thank you!
Because its used to pay off the debt from the acquisition.
Source: Me via a quick google search.
Right but in a M&A deal you also have debt but in my firm we do not use seller's excess cash as a source but in LBO videos they do
Good point. As you can see, its very evident that I don't know what I'm talking about. I'm just a shitty college senior.
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