Hi Guys,
Is there anyone who could provide me with a good LBO model in which there is made a distinction between preference shares and ordinary shares? What is the ratio between ordinary and preference shares usually? And what is the rationale behind it? Would be great if someone could help me out..
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Would model it as another tranche of debt that is above the common. They are there to increase the returns to equity (i.e. IRR)
In addition to the comment above where pref shares can have interest (noting that the interest can be accumulated or not, depending on the terms), thought I would outline a couple of other features.
In VC and Growth equity investing pref shares are there to provide downside protection (some of this logic probably applies to buyout). This is achieved via a liquidation preference (eg 1x liq pref allows investors in prefs to get 1x their money back in a liquidation event - this doesn’t have to be a bankruptcy, it could be a strategic sale where the value of the company was lower than expected).
In addition, the pref shares can be participating or not. If they are participating then after the 1x liq pref (as an example), they convert to ords/common and share the distribution to ords/common.
Thank you! What is usually the ratio of Ordinay Shares to Prefs?
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