Hey guys,
I was wondering if it's possible to perform an LBO on a bank / financial institution. I understand it might be extremely complex due to regulations, various capital requirements, etc., but has it been done? Is it theoretically possible?
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Theoretically? Not likely.
Regulation aside, banks are essentially maxed out when it comes to debt since leverage is a core port of their business model. An acquisition would likely be 100% equity (cash), with a focus on improving ROE by cutting costs or boosting loan growth. You would still generate sizable returns.
In most jurisdictions you can put some debt at HoldCo level (outside banking perimeter not to affect capital ratios) in such scenario, however it has some major issues: - Significantly more expensive - Difficult to structure with cash interests, most likely will need to be PIK - Interest expenses probably not tax deductible
Yup. And crucially you aren't going to get a share pledge from the parent in most instances so only few PE firms are able to pull off regulated financial leveraged financings as banks will be lending heavily on the reputation of the PE firm. Think specialists like JC Flowers or bigger funds like Bain.
the type of business doesn't lend itself to LBOs. As they said above, leverage is maximized so value would have to be created by either arbitrage or, cost cutting
Bank LBO (Originally Posted: 02/16/2016)
Anyone have resources (case studies, investment theses, etc.) on LBOs of Banks (or other depositories) - I understand the use of leverage is quite different in these situations, but would love to see additional analysis and/or information on this.
Thanks
Not sure how much of this you're realistically going to find. Probably your best bet is to find the historicals of some bank that IPO'd that was LBO'd in the past (hopefully recently). I haven't done much (any) FIG work before so idk tho
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