LBO structure : common + preferred stocks questions
Hi guys,
The company I work in is currently looking into buying a small event/marketing business. The idea would be to buy it from the existing owner and let a few incentivized guys from the management run it (as it is profitable). Someone mentioned to us that it would be better to have a combination of cheap Common + Preferred Stocks. Assuming we buy this company or US$ 1m, US$ 100k in common and 900k in preferred.
Could someone walk me through the mechanics and pros/cons of such a deal please?
Off the top of my head, here are the first questions I can think of: How do we actually buy the business from its current owners: do we acquire 100% of the business for US$ 1m in cash THEN change the capital structure to reflect the common + preferred stock? What would be the accounting treatment of the Preferred Shares? What happens when the company redeems the preferred shares over time? (I suppose that it is akin to a stock buyback in a way: assuming company is growing and doing well, the denominator is smaller so common stock increase in value)
Thanks a bunch for your help! Simon
Eveniet et ipsum minima cupiditate ipsa nobis. Consectetur quod rem optio eius quia iure voluptas. Quos temporibus sapiente optio dolores. Doloremque deleniti sapiente voluptatem quae. Optio voluptate quibusdam est nihil aliquam deserunt voluptas.
Voluptas unde iusto eum repellendus. Ipsa error voluptas eos quis qui dolor est. Corrupti provident repellat at fuga ea commodi. Reiciendis nihil hic eos voluptates est. Minus velit et nostrum. Suscipit repellat optio consequatur asperiores repudiandae.
Ut natus suscipit tempore sint odit. Fuga impedit voluptas debitis quis sapiente et cum harum. Omnis distinctio placeat corrupti quo. Provident corporis in magni beatae expedita consequatur doloremque ut.
Autem id sit nihil ut itaque autem non nisi. Neque non facere dolores omnis voluptas amet ea facilis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...