Hello,
In the M&A chapter, I have trouble understanding the difference between
-
Leverage Buy-Out (LBO)
-
Leveraged Recapitalization
-
Share repurchase
Can someone shed the light between them?
Thank you much!
Leverage buy-out is a majority purchase of the entire company using a large amount of debt and a smaller portion of equity to fund the acquisition. Typically completed by private equity firms.
A leveraged recapitalization is when a company issues a large amount of debt to issue a one-time dividend. Often times, PE firms will do this with their portfolio companies after the initial LBO and once a company has paid down debt and/or improved operationally to a point where the PE firm can add more debt to the capital structure. This is a way for the PE firm to get back some, all, or more than the equity they initially invested, thereby increasing their returns.
A share repurchase is when a company uses excess free cash flow to buy shares in the open market. They do this as a form of capital return to shareholders. They can do this a number ways: daily open market purchases for some time frame, a tender offer, a block purchase from a large shareholder, etc.