Is it still considered a LBO if a public corporate acquires another corporate (private) using 100% debt? I know the term LBO is typically used in the context of a sponsor using a significant amount of leverage to acquire a company, but wasn't sure if LBO could also just be used as a highly leveraged transaction, sponsor or no sponsor present.
What are your thoughts?
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No, that is just a merger financed with debt. I get the confusion - LBOs are acquisitions at the end of the day. But keep in mind a few things that distinguish LBOs from other acquisitions:
1. In LBOs the buyer is (usually) a bankruptcy remote LLC shell instead of an actual business. This means that all txn debt is secured by the target’s own assets and the purchase accounting adjustments are based on the target’s standalone balance sheet. This is different than a traditional merger, where you are combining two separate businesses
2. In a LBO the buyer intends to exit the investment after ~5 years and uses return on equity as its main form of analysis (either IRR or MOIC). No synergies are expected (though the sponsor might assume higher margins based on how it plans to run the business).
In a traditional merger, a public company analyzes its returns based on its effect on standalone earnings per share (ie, accretion dilution analysis). This is a GAAP based analysis that typically includes synergies and various merger related accounting charges. Obviously cash flows are much less relevant here than for an LBO where accounting earnings are irrelevant
Tl;dr - public co mergers and LBOs have basic structural differences and use different kinds of analysis
Thanks for your input, Draymond. So if I worked on a transaction like this (where we were putting together part of the financing), would it be correct to list something like "$Arranged xxxMM credit facility for an Industrial Co's M&A of a major competitor"?
Also, would it be appropriate to say "arranged" if we technically did not get lead left, but instead were like a joint lead arranger (right)?
You can say "arranged." I would rephrase your resume line to say:
"Arranged $__MM credit facility in connection with buyer's acquisition of target"
"M&A" isn't a verb after all
Deleting this comment because I'm an idiot
Seems like a difference of opinions. I just want to know if it would be accurate to say I worked on a LBO (putting part of the financing) on my resume and not sound stupid in an interview lol
..
Dude... you didn’t work on an LBO. Read the answers to the question you asked.
Wow OK I'm gonna make this very clear and simple:
Public company acquires any company and is still public, that's M&A (NEVER LBO). Crown acquiring Signode below. The 2 companies have combined revenues and increased scale. (PUBLIC COMPANY GOING FWD, no matter what happened prior). LBO is a sponsor buying a company. (PRIVATE COMPANY - Pro Forma, no matter what happened prior. ) Also want to clarify minformation @ $0 synergies comment for LBO. Quite the contrary. They'll often add value and use their industry expertise to drive growth, reduce costs, expand to new markets, and acquire and integrate acquisitions using their proprietary data. Totalprojectcost savings from platform integration Operations: $20m Process transformation and automation 30% reduction in premises footprint Back office consolidation (risk, compliance, and operations) Risk platform: $15m Fraud reduction Good / Bad rate improvement Credit loss improvement Digital Wallet funding enhancement Bank as a service: $20m Lower fees (acquiring, APM, FX) Closing of unused accounts Banking relationship consolidation Consolidate onto proprietary acquiring licenses
Finally - example of Transaction Experience. The ppl interviewing me were always able to understand what's going on below, using less words and clutter
Transaction Experience • Bumble (Blackstone) | $200MM Revolver / 1.0B Term Loan | LBO (Left-lead) • Crown Holdings (Signode) | $2.0 Term Loan B | M&A (Joint Lead) [Or say Right-lead]
Increase inefficiencies? Typo?
Of the three “synergies” you listed, only the last one is close to an actual synergy.
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