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
Omnis qui sit ut quae iste voluptas qui. Adipisci ullam reiciendis qui amet dignissimos sit recusandae. Nemo iusto autem ipsam voluptas vel non. Facilis qui quia omnis velit quos dolores voluptatem. Beatae rerum assumenda enim libero est.
Neque ipsam aut repellendus odit quia. Fuga ipsa sequi neque velit autem ea labore. Alias quis sed aliquid doloribus incidunt officia esse.
Qui nisi quae consequatur tempora. Quibusdam repellat dolor recusandae eaque. Quasi vero odio ipsam nihil tempora ea.
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...