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Monday, January 29, 2007
Wall Streets Best Kept Secrect (the art of the lbo)
Wall Streets Best Kept Secrect (the art of the lbo)
by Tycoon2k Webmaster
I am sure you have heard the late night gurus tout how you
can buy real estate with no money down well if you are still
not sure, of course you can buy real estate with no money
down I have purchased several properties with no money out
my own pocket I would go into detail but I will save that
for another post.
It would take a whole text book to thoroughly go over how
to complete an lbo (LEVERAGE BUYOUT) which i don't have space
for on this one web page but I will highlight the basics.
You can take it from there and fill in the gaps.
There is no secret in the fact that wall streets top 12
or so INVESTMENT BANKS raked in over $24 billion dollars
in bonuses for the yr ending 2006.
Now i am not implying that the investment houses made all
that money from lbo's or M&A work but you can bet your
lunch money a large chunk was M&A related.
LBO BASICS:
Just What is an LBO or leveraged buyout:
Simple definition its were a company is bought with 80 to
100% debt financing with the target companies assets being
put up as collateral to get 80 to 100% debt financing.
Or better yet lets say you find a company that's for sale and
for sake of example the owner wants $300.000 and after doing
a due diligence with the help of your CPA you verify the
company has $600.000 in hard assets this could comprise of
real estate,machinery & equipment,inventory,acct receivables
to name a few.
Again for example lets just say this golden jewel was
business park fully owned with no liens and appraised
at $500.000, with the other 100k or so of assets comprising
of inventory, acct receivables and good will.
You the buyer verified with your local banker that the bank
is willing to lend 75% LTV on the building.
Lets do the math $600k x 75% = $375000.00. You and your
CPA and ATTY all meet with the seller at the close of
escrow the bank cuts you the buyer a check for $375k
you the buyer instruct escrow to cut $300k to the seller
you the buyer deduct any closing cost and at the end of
the day walk away with almost $75k and owning a 1/2 million
dollar business with no down payment.
Now I attempted to make the scenario as simple as possible
to understand the concept. And PLEASE don't think this is
some form of theory one the largest lbo's in history was
completed with very little equity capital from the buyer
I am speaking of KKRs LBO of RJR/Nabisco for $25 Billion+
On wall street this information is hardly secret hedge
funds and equity funds are sitting on billions of dollars
looking for LBO's everyday.No this article is for the
small business owner $50k to 1 million in sales.
Lets recap:
1. Find business for sale with plenty of hard assets
2.Verify how much those assets are worth and how much you
can borrow against them
3.Verify the business P&L statement and all debt owed
4.Negotiate with seller or broker to get agreed upon price
within the confines of your ability to borrow against the
companies assets.
5.Close The Deal.
Now I am sure your saying who is going to sell you a
business that has assets double the amount of the asking
price.
Most owners wont, but your focus as a lbo specialist
will be on distress situations bad mgmt,divorce,death in the
family, owner moving, owner retiring to name a few.
So If you are a small business owner it would behoove you
to not only learn the art of lbos but begin practicing
lbo finance in all acquisition and growth strategies.
And don't think for a minute LBO's are only for the WALL ST
Titans a small business man in TX with $25k of borrowed
money purchased 1 small pharmacy and built it up to what
we know today as ECKERD DRUGS.
About The Author:
Tycoon2k has been affiliated with two regional Investment
Banks and with a dealmaking firm in southern ca. that was
acquired by CITIGROUP.
Note:
If You Don't Have
The $50K Or So
Needed To Start
Get Your
Capitalist Tool BoxHERE
by Tycoon2k Webmaster
I am sure you have heard the late night gurus tout how you
can buy real estate with no money down well if you are still
not sure, of course you can buy real estate with no money
down I have purchased several properties with no money out
my own pocket I would go into detail but I will save that
for another post.
It would take a whole text book to thoroughly go over how
to complete an lbo (LEVERAGE BUYOUT) which i don't have space
for on this one web page but I will highlight the basics.
You can take it from there and fill in the gaps.
There is no secret in the fact that wall streets top 12
or so INVESTMENT BANKS raked in over $24 billion dollars
in bonuses for the yr ending 2006.
Now i am not implying that the investment houses made all
that money from lbo's or M&A work but you can bet your
lunch money a large chunk was M&A related.
LBO BASICS:
Just What is an LBO or leveraged buyout:
Simple definition its were a company is bought with 80 to
100% debt financing with the target companies assets being
put up as collateral to get 80 to 100% debt financing.
Or better yet lets say you find a company that's for sale and
for sake of example the owner wants $300.000 and after doing
a due diligence with the help of your CPA you verify the
company has $600.000 in hard assets this could comprise of
real estate,machinery & equipment,inventory,acct receivables
to name a few.
Again for example lets just say this golden jewel was
business park fully owned with no liens and appraised
at $500.000, with the other 100k or so of assets comprising
of inventory, acct receivables and good will.
You the buyer verified with your local banker that the bank
is willing to lend 75% LTV on the building.
Lets do the math $600k x 75% = $375000.00. You and your
CPA and ATTY all meet with the seller at the close of
escrow the bank cuts you the buyer a check for $375k
you the buyer instruct escrow to cut $300k to the seller
you the buyer deduct any closing cost and at the end of
the day walk away with almost $75k and owning a 1/2 million
dollar business with no down payment.
Now I attempted to make the scenario as simple as possible
to understand the concept. And PLEASE don't think this is
some form of theory one the largest lbo's in history was
completed with very little equity capital from the buyer
I am speaking of KKRs LBO of RJR/Nabisco for $25 Billion+
On wall street this information is hardly secret hedge
funds and equity funds are sitting on billions of dollars
looking for LBO's everyday.No this article is for the
small business owner $50k to 1 million in sales.
Lets recap:
1. Find business for sale with plenty of hard assets
2.Verify how much those assets are worth and how much you
can borrow against them
3.Verify the business P&L statement and all debt owed
4.Negotiate with seller or broker to get agreed upon price
within the confines of your ability to borrow against the
companies assets.
5.Close The Deal.
Now I am sure your saying who is going to sell you a
business that has assets double the amount of the asking
price.
Most owners wont, but your focus as a lbo specialist
will be on distress situations bad mgmt,divorce,death in the
family, owner moving, owner retiring to name a few.
So If you are a small business owner it would behoove you
to not only learn the art of lbos but begin practicing
lbo finance in all acquisition and growth strategies.
And don't think for a minute LBO's are only for the WALL ST
Titans a small business man in TX with $25k of borrowed
money purchased 1 small pharmacy and built it up to what
we know today as ECKERD DRUGS.
About The Author:
Tycoon2k has been affiliated with two regional Investment
Banks and with a dealmaking firm in southern ca. that was
acquired by CITIGROUP.
Note:
If You Don't Have
The $50K Or So
Needed To Start
Get Your
Capitalist Tool BoxHERE
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