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Gratte-ciel

LBO/OBO

LBO, what is it?

It is a financial arrangement allowing by a leverage effect to have its shares redeemed by a holding company.

Advantages

- Contributions from various investors will inject fresh money into the company.

- The intellectual contribution of each investor should not be neglected and it is possible to observe very good results after an LBO operation.

Different types of LBO 

-LMBO (= Leveraged management buy out): The buyers will be the senior executives of the target company 

-LMBI (= Leveraged management buy in): In this case we find private investors who are buyers

-LBU (= Leveraged build up): Construction of a group merging several activities 

-OBO (= Owner buy out): Allows a manager to buy back part of his professional assets and anticipate a transfer of his business 

-BIMBO (= Buy in management buy out): Here, the investors of the holding company are on the one hand external investors and on the other hand executives of the target company.

The risks

Since the holding company does not have sources of income, it is the target company that must fully bear the loan. The latter must be able to repay the loan and be financially sound. The objective is not to see that the target company works only to repay the installments, it must also be in a logic of development.

Financing of an LBO

-Equity: This operation requires a personal investment 

-business credit: The target company will have to show a certain financial stability, because it is it which will repay each installment thanks to its profits. The banking organization will therefore mainly examine the health of the company.
 

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