SME HoldCo Buying 70% of an industrial company, how to think about leverage?

Hi,

I am wondering how to think about/model the following situation from a financing perspective for bank negotiations.

I am managing our family HoldCo, focusing on small businesses. We currently have one subsidiary/portfolio company, and are looking to acquire another business (entirely separate from the current portfolio company).
We are looking at an opportunity where we would buy 70% of an company, where the previous part-owner/CEO would stay on with the remaining minority stake.

Should I use the traditional LBO-model to look at the debt schedule, but just multiply cash available for debt repayment with 0.7?

As I understand, the debt will be placed on our HoldCo's Balance sheet, and we will need to pay the debt down with dividends from the new business? This way we are only able to use 70% of the available cash flow (simplified).

I am confused as the LBO templates I have looked at have the debt on the balance sheet of the acquired company, and use 100% of the cash flow to pay down debt, even if there is management roll-over?
How should I think about this when presenting to our bank?

Thanks for the help and sorry if it is an obvious question!

 

IMO the entire assets are going to be consolidated and you will have a minority interest. Regarding debt servicing I think it's important to know at which level the debt will sit, if at the SubCo then it will be its responsibility to pay it off.

If at the HoldCo level then the HoldCo will pay it off with its cashflow including the cashflows coming from the 70% stake in the SubCo

 

Repellendus fugiat illum rerum nostrum nulla voluptatibus id. Cumque id atque nihil accusantium vel laudantium et.

Placeat nihil rerum iusto ratione. Tenetur aut enim debitis quasi eaque sapiente soluta aliquam. Quia hic aut vero quae.

Eveniet rerum delectus nam sed labore. Provident sapiente consequatur id qui quod et. Qui unde qui error fuga. Voluptatem incidunt quia mollitia voluptatum. Vitae impedit culpa placeat blanditiis reiciendis alias.

Architecto in voluptatum vel possimus ipsam et perspiciatis. Laborum saepe laborum voluptatem rerum consequatur quis beatae. Maiores et omnis enim voluptates sequi nisi voluptates. Vel deserunt est quia animi. Possimus delectus dolore ea consequatur. Molestias laboriosam minus nam. Molestias ipsum blanditiis natus molestias est sequi ipsum.

Career Advancement Opportunities

April 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 99.0%
  • Warburg Pincus 98.4%
  • KKR (Kohlberg Kravis Roberts) 97.9%
  • Bain Capital 97.4%

Overall Employee Satisfaction

April 2024 Private Equity

  • The Riverside Company 99.5%
  • Blackstone Group 98.9%
  • KKR (Kohlberg Kravis Roberts) 98.4%
  • Ardian 97.9%
  • Bain Capital 97.4%

Professional Growth Opportunities

April 2024 Private Equity

  • The Riverside Company 99.5%
  • Bain Capital 99.0%
  • Blackstone Group 98.4%
  • Warburg Pincus 97.9%
  • Starwood Capital Group 97.4%

Total Avg Compensation

April 2024 Private Equity

  • Principal (9) $653
  • Director/MD (22) $569
  • Vice President (92) $362
  • 3rd+ Year Associate (91) $281
  • 2nd Year Associate (206) $266
  • 1st Year Associate (387) $229
  • 3rd+ Year Analyst (29) $154
  • 2nd Year Analyst (83) $134
  • 1st Year Analyst (246) $122
  • Intern/Summer Associate (32) $82
  • Intern/Summer Analyst (314) $59
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
kanon's picture
kanon
98.9
6
CompBanker's picture
CompBanker
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
numi's picture
numi
98.8
10
Kenny_Powers_CFA's picture
Kenny_Powers_CFA
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”