If you’re a business owner, you are most likely always thinking about how to grow your business — or maybe when + how to make your exit. Whichever direction you’re heading, the stakes are high. Take the right steps, and you could be looking at enhanced profit and a secure future; take the wrong ones and jeopardize everything you’ve worked hard for.
But what if there was an approach that could serve as either a strong acquisition strategy for a buyer or a smart exit strategy for a seller?
Enter: A Leveraged Buyout (LBO).
What is an LBO?
Before we lose you to the lingo — hear us out. An LBO could be the solution that results in the best outcome for your business.
An LBO enables a buyer to acquire a company using less cash, and the seller gets a smooth exit from their business (with terms that reward them for the company they have built).
If you’re looking to buy a business, you may be asking yourself:
- Can I handle this much debt?
- Am I overpaying?
- What are my first steps?
If you’re a seller, it’s natural to question if now is the right time to sell or wonder what you expect from the process.
The good news: A bank (like Vantage Bank) can help.
How a bank can help
Vantage Bank DFW Market President, Jim Luttrell, shares how a bank can best help with LBOs:
“The first thing we do in a leveraged buyout is acquire an understanding of the companies involved. We visit the site, learn their story, and dive deep into the financials. Then we are able to answer questions and apply our skill in designing the best deal architecture. We might determine this isn’t the right time to sell, or maybe we don’t think it’s a good investment for the buyer. We will be the first to point that out because we always want our client to succeed.”
How high interest rates impact LBOs
Let’s let Jim explain:
“Capital and debt markets have seen a dramatic decline in mergers, acquisitions and LBOs, most recently due to increased rate pressure. However, it’s possible that the Fed’s rate hikes could also spur buying opportunities by creating a potential value-added market for private equity.”
Despite rising rates, an LBO can still be the right move. Why? Because they offer buyers a good rate of return due to so little equity being required. Have more to put down? That’s a bonus.
Of course, the best decision varies depending on your situation. In any economic situation, you want to move forward with confidence, beginning with the right banker.
An LBO banker should:
- Have the expertise and transparency to recommend the best course of action, even if it’s not the answer you originally envisioned.
- Be more like a partner than a bank, with the foresight to anticipate the deal’s future impact and act in your (and your people’s) best interests.
- Have private equity experience that lends itself to understanding all sides of the capital stack and how to properly structure the LBO.
There is always opportunity in the mergers + acquisitions landscape. Let the experts at Vantage Bank let you know if it’s the right time for your business.*