Comment, question or quotation of the day

07-05-2021 : Quote of the day

"Managers and investors should understand that accounting data are a beginning and not an end in valuing a firm"       

Warren Buffett, American investor and philanthropist

06-05-2021 : Question from a Vernimmen fan

"Is a LBO structure a viable solution for management to acquire a minority interest in a company by leveraging debt? "


Not an easy solution as lenders will be worried about the capacity of the management, being a minority shareholder, to decide a high enough pay-out ratio to allow a fluid flow of dividends to be paid to the holdco to repay its debt. This is the key reason why nearly all LBOs are built around a 100 % stake in the operating company, leaving no doubt about this capacity.

We think is it doable in the current context, but lenders will not lend you as much money as they would in a classic LBO structure. And they need to be reassured about this point, for example by a pre-defined pay-out ratio included in the shareholders's agreement or the articles of association

Have a nice day,




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The Letter

Number 137 of March 2021

News : Some thoughts on recent episodes involving governance issues

Statistics : Corporate income tax rates in the world

Research : The role of creditors in internal resource allocation

Q&A : A few questions and short answers

COMMENTS : Comments posted on Facebook