Corporate Finance Transaction Types
I have outlined below some of the more common M&A transaction types.
Seed Capital / Angel Investments are early stage infusions of capital usually used to launch a company. This is often the first outside capital a firm will raise.
Growth Capital is used to further grow the business. It is often provided to both early stage companies as well as more established companies with an identifiable growth opportunity.
Acquisitions are made when one company buys another company. The buyer is referred to as the acquirer and the seller is referred to as the target.
Mergers imply the combination between two companies. In practice, they rarely exist. Almost all mergers are actually acquisitions, in that assets move one way and cash goes another way. Even though it may be called a “merger” because this sounds more friendly, you can tell who bought who by the name of the newly combined entity. The first name in the new company was the acquirer. The second name was the target… and that name will be dropped with time.
Acquisition Capital is provided to a company for the specific purpose of acquiring another company.
Management Buyouts (MBO) are acquisitions of a company by the management team. This is normally done in conjunction with outside investors who provide the required capital for the transaction.
Leveraged Buyouts (LBO) are company acquisitions where the capital used for the buyout is debt, thus providing the financial leverage implied by the name.
Consolidations & Industry Roll-Ups are growth strategies to consolidate a fragmented industry by combining the various smaller players within an industry niche.
Corporate Divestitures, Carve-Outs or Spin-Offs are performed when a larger corporate entity sells one of its divisions to a third party.
Employee Stock Ownership Plans (ESOP) are corporate ownership structures where the employees collectively participate in the ownership of the company for which they work. ESPOs may be instituted to create liquidity for existing shareholders.
Shareholder Liquidity is provided when owners receive some cash in exchange for their shares in the company. This cash provides some liquidity, compared to the illiquid equity position.
Recapitalizations are simply any activity that restructures the nature of a company’s balance sheet by adding either debt or equity infusions of capital.
Turnaround or Distressed Situations are investments in companies in financial trouble, either because they are currently going through bankruptcy or near it.