Everything You Need to Know About Leveraged Buyouts:
If you are looking for an exit strategy from a current investment or business that you are part of then a leveraged buyout is often a great way to go. It may be that you invested in your business for many years or you have a new business, but you find an opportunity that is better for you. You want to go for that opportunity and start a new chapter in your life. Whatever the reason, you deserve to reap the benefits of your business to their fullest extent as part of your exit strategy.
What is Leveraged Buyout?
Leveraged buyouts are financial transactions that a company can use to combine both debt and equity so that your company cash flow is used to help repay any money that you borrow. Another company buys out your company using a large portion of the financing. The company purchasing the other company is doing a leveraged buyout of the company that it purchases.
The average ratio is 90% debt to 10% equity when the deal is executed correctly.
Why Do Businesses Use Leveraged Buyouts?
Leveraged buyouts are typically used as part of a mergers & acquisition (M&A) strategy if a business is looking to purchase other smaller businesses and increase their business’s investment portfolio. Leveraged buyouts allow you to purchase a business without having to use a lot of your own money to do it.
Some other reasons leveraged buyouts are used include the following:
To help make a company that is public become private.
To help break down a larger company into smaller parts.
To help boost up a company that is under-performing.
To help a company acquire a competing company.
These are some of the top benefits of a Leveraged Buyout plan. They benefit the investor in many ways.
Benefits of Leveraged Buyouts:
Leveraged buyouts help the buyer purchase another company without having to spend a lot of their own money. The profit margins are often larger and the return on the money that the purchasing business puts into the other business is also much greater.
Leveraged buyouts can also help lower a company’s corporate tax rates. The business can claim tax breaks that they didn’t have before. Even if the business that is acquired is not at its peak.
For more information on how a leveraged buyout can help your business, please feel free to contact us any time. We are always here to help.