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This is as misleading as those real estate shows that promise "no money down" or "other people's money" style financing. They bought 80% of a business at 0% APR
by sidlls 6y ago
This is as misleading as those real estate shows that promise "no money down" or "other people's money" style financing. They bought 80% of a business at 0% APR for a set of 20 installment payments. They are funding the payments with the business' revenue--meaning they are not able to pocket that cash themselves, i.e., they're using their (business) income to pay the cost of the loan.
- inopinatus 6y agoThe title is clickbait, but the deal itself is also boring. Basically, they funded the capital for an acquisition, from debt representing the expected future cashflows of the acquired entity, with repayments timed similarly to match. As M&A goes, that is ho-hum unremarkable. It's the most ordinary of all M&A business cases, or indeed any business case, viz. that the IRR exceeds the WACC. The only aspect of this deal that looks even slightly uncommon - and then, only very slightly, depending on your locale - is that the original founder is the bond holder, and the capital thereby very cheap. Being funded by privately issued debt means the glibness in the article's tone must be overshadowed by the unstated but strongly undesirable consequences of defaulting on the repayments. Yes you can "buy a company for $0", at least going by the amortized net values of future cashflows. But caveat emptor, if your eyes aren't wide open, you can also lose your shirt.
- pottertheotter 6y agoIf it were so unremarkable, why isn't there a term for this sort of transaction and an I industry built around it? I suggest the transaction be called a leveraged buyout (we can shorten it to LBO) and call the industry private equity.
- hedgehog 6y agoSeller financed sales are reasonably common in business and real estate.
- deleted 6y ago[deleted]
- inopinatus 6y agoI avoided saying this is an LBO because persnickety finance folks may observe that the debt structure expected under the traditional definition of the term is quite particular, viz. that the acquired/merged entity ends up liable for the debt (either directly or as security), but there's language in the article strongly insinuating that the debt in this case was issued separately by the author's partnership, whose structure isn't apparent, but is evidently distinct. But, otherwise, yes indeed, quite so, the category of acquisition funded by debt is very well understood, the varieties extensively studied and practiced. So much so as to be taught in M&A 101, and my expression that it is unremarkable arises from this utter lack of novelty.
- celticninja 6y agoThis is how the Glazers purchased the Manchester United football team.