Glossary

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BIMBO ('BUY-IN MANAGEMENT BUYOUT’)

A transaction which mirrors characteristics of both a management buyout and a management buy-in, in which at least some of the existing management team are involved in the buyout the company, in association with one or more external managers contributing new skills, experience or capital. Often supported by further capital from external funders.

BRIDGING LOAN

A temporary or interim financing solution to ‘bridge’ a short term cashflow requirement arising from a one-off obligation or until a company can secure a permanent financing agreement.

BUSINESS ANGELS

Individuals and entrepreneurs specialising in the provision of start-up finance to young businesses or new ventures, generally in return for an equity stake in the business.

BUYOUT

Purchase of a company or a controlling interest of its shares.

CAPITALISATION

Term used to describe a company’s permanent capital, long-term debt and equity structure.

CAPITALISATION RATIO

Measure of the company’s debt component of the company’s capitalization. Measures the extent of debt used in relation to the company’s permanent capital. Determined by dividing long-term debt by long-term debt plus equity.

CLUB DEAL

Usually a Leveraged Buyout, collectively funded by a number of different banks or lending institutions.

COLLATERAL

Term used in lending agreements to represent the property or other assets that are pledged by the borrower to the lender, against which loan finance is often secured. Serves as protection for the lender against a possible default on repayment, at which point the lender would take possession of such collateral. Also referred to as ‘Security’.

COMMITTED CAPITAL

Reflective of the total size of the funds available to invest. Sometimes also referred to as ‘Capital Under Management’.

COMPANY BUY-BACK

Process by which a company may buy back the equity stake held by a financial investor.

COUPON RATE

The amount of interest paid per annum, as a percentage of the face value of a loan.

COVENANTS

Provisions in the legal agreements on loans, bonds, or lines of credit, often incorporated to protect the position of a lender as a creditor of the borrower.

CRO (‘CHIEF RESTRUCTURING OFFICER’)

Often a turnaround professional, appointed by either the company or one of the other stakeholders, to manage the structuring and implementation of a restructuring of a business’ processes, strategy or operations.

DEBT FOR EQUITY SWAPS

An agreement through which a company’s creditors or lenders agree to cancel some or all of the outstanding debt they are due, in exchange for obtaining an equity holding in the company. The shareholding of the other equity holders is normally diluted as part of the equity restructure.

EARLY-STAGE FINANCE

Investment opportunity usually more suited to venture capital providers as opposed to private equity, representing investment in a company’s initial stages of development.

EQUITY FINANCING

In addition or in place of debt financing, new shares are created and issued in return for a cash investment.

EXIT

The means by which a private equity fund or other investor is able to realise their investment in a company, achieved via one of a number of different routes, including Initial Public Offering, sale to a trade buyer, selling to another private equity firm or a company buy-back.

FOLLOW-ON FUNDING

A company may require more than one tranche of funding, due to seasonality or the dynamics of the associated business plan.

FUND OF FUNDS

A specialist private equity fund set up to invest commitments via a selection of private equity fund manager partners, who in turn invest directly in companies matching their specific investment criteria.

GENERAL PARTNER

Usually the firm managing the private equity fund.

HOLD PERIOD

The length of time an investment is typically held before investors would hope to divest via secondary buyout, trade sale, flotation or an alternative means of exit.

HURDLE RATE

The minimum amount of return that needs to be derived in order that the fund can meet its internal criteria. Also referred to as ‘Preferred Return’.

INSTITUTIONAL BUYOUT (‘IBO’)

Acquisition, often taking place through a ‘Newco’, in which the private equity or institutional investor takes the majority equity stake. Management may also take a share in the acquiring entity.

INITIAL PUBLIC OFFERING (‘IPO’)

A privately held company listing a proportion of shares on a recognised stock exchange, in order to secure equity / growth capital.

INTERNAL RATE OF RETURN (‘IRR’)

A common performance benchmark, being the time-weighted return on investment, expressed as a percentage.

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LEAD ADVISOR

The financial advisor engaged to co-ordinate a specific transaction, on behalf of either the party acquiring or divesting of the asset.

LEAD INVESTOR

The institution, bank or funder that co-ordinates a round of financing, usually contributing the largest amount of capital to the deal.

LEVERAGED BUYOUT (‘LBO’)

The acquisition of a company by means of debt and equity finance, with more debt than equity usually applied. The assets of the target company may be used as collateral against which the debt is secured.

LIBOR (‘LONDON INTERBANK OFFERED RATE’)

Daily reference rate, determined by the rates at which banks participating in the London money market borrow unsecured short term funds from one another. Often used to determine the price of other financial instruments including Loan Notes and interest swaps and mortgages.

LIMITED PARTNERS

Institutions or individuals contributing capital to a private equity fund, typical including pension funds, insurance companies, asset management firms, high net worth individuals and fund of fund investors.

LIMITED PARTNERSHIP

The standard vehicle through which Limited Partners invest in a specific private equity fund. Has a fixed life, of usually ten years.

LOAN NOTE

An agreement between lender and borrower, detailing the terms and conditions on which the loan and associated payments will be made.

MANAGEMENT BUY-IN (‘MBI’)

Transaction through which an external team of managers buy into a company from outside, taking a majority equity stake, often supported by private equity financing. More likely to occur where incumbent management wish to exit (e.g. succession issues) or do not have the resource or appetite for a buyout deal. Considered to be of higher risk than an MBO due to lack of familiarity on the part of the external team with the target business.

MANAGEMENT BUYOUT (‘MBO’)

Transaction through which the incumbent operational management team acquire a majority stake in the target business, often supported by private equity funding.

MEZZANINE FINANCING

Often the ‘middle layer’ of debt finance applied in leveraged transactions, sitting between equity and secured debt. Associated risk is usually higher for mezzanine funding than for senior debt, so the associated interest charge will often be higher. Equity warrants or options may also be included in the deal.

MINORITY INTEREST

A significant but non-controlling equity holding in a company, of less than 50% of a company’s issued voting share capital.

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OFFICIAL BANK RATE

The key interest rate, being the rate at which the Bank of England lends overnight funds to other banks. Also referred to as the ‘Bank of England Base Rate’.

PARTNER

The title attaching to certain senior individuals involved in the investment and portfolio management activities of Endless LLP.

PRIVATE EQUITY

An asset class which consists of equity holdings in non publicly traded companies, most often via an investment of capital into an operating company, or else via acquisition.

PUBLIC TO PRIVATE

Process via which a publicly traded company is taken into private ownership, either via the sale of an individual division or else a delisting of the entire listed entity.

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RECAPITALISATION

A change in the financing structure of a company, generally via a restructure of the existing capital profile, often accompanied by an injection of fresh debt or equity capital.

REVOLVING CREDIT FACILITY

A type of credit facility without fixed repayments, typically used to fund working capital swings and day-to-day liquidity. Whilst terms, pricing and fees are specific to each individual agreement, the facility can usually be drawn to a pre-approved limit and can be used repeatedly as funds are repaid then redrawn.

SALE AND LEASEBACK

Process by which a company can unlock value from its property assets, via a sale of such assets to a financial institution or investor. A lease is granted as part of the transaction by the purchaser to the seller, to allow continued occupation of the property under the terms of the new lease.

SECONDARY BUY-OUT

Represents a common exit strategy, usually involving a Leveraged Buyout between different private equity firms or financial sponsors.

SECURITY

See ‘Collateral’.

SEED CAPITAL

Provision of very early stage finance to a company which is yet to be established. Often provided by Business Angels or venture capitalists rather than by private equity funds.

SPV (‘SPECIAL PURPOSE VEHICLE’)

A legal entity specifically created for a particular financial transaction, typically in complex financing structures to separate different layers of funding. Also referred to as SPEs (‘Special Purpose Entities’).

SYNDICATION

The structuring, arrangement and administration of debt finance between a group of lenders, most commonly in support of a Leveraged Buyout. One lender will normally act as Lead Investor.

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VENTURE CAPITAL

Investors / funds generally financing early stage investments, as opposed to later stage debt and equity finance provided by private equity firms.

VINTAGE YEAR

The year in which a private equity fund makes its first investment.

There are no terms for this letter.