All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

To finance the acquisition of companies, buyers often resort to borrowing. Even though all traditional sources of borrowing can be utilized, M&A transactions often involve specific sources of financing.
The first source of borrowing is constituted by the immediate circle of the buyer, namely family, friends, and acquaintances... This is referred to as “love money.” Quick to obtain, these funds all …

Techniques inherent in mergers and acquisitions

To finance the acquisition of companies, buyers often resort to borrowing. Even though all traditional sources of borrowing can be utilized, M&A transactions often involve specific sources of financing.

The first source of borrowing is constituted by the immediate circle of the buyer, namely family, friends, and acquaintances... This is referred to as “love money.” Quick to obtain, these funds allow the buyer to reassure the seller about their solvency. However, financing can also be achieved by appealing to actors commonly referred to as “business angels.” Widely used by start-ups, this mode of financing involves an individual investor providing funds to a high-potential company in which they believe.

Beyond these mechanisms, an undertaking aiming for more significant expansion can resort to borrowing techniques specific to the field of mergers and acquisitions, such as the Leverage Buy Out (LBO). Originating in the United States, the LBO refers to the relatively simple arrangement by which a potential acquirer, usually an investment fund, wishing to acquire a target company without having all the necessary funds, creates a company called a holding company or Newco to which it contributes a portion of capital. This holding then borrows from banking institutions and/or specialized funds to acquire control of the target company. The operation generates a significant financial leverage effect. Indeed, the loan taken out by the holding company is repaid by the dividends passed up from the target company. The success of such an operation therefore involves ensuring the sufficient profitability of the target before proceeding with the operation. The leverage effect can be further increased by a merger between the target company and the holding. The holding can thus repay the loan without waiting for the potential distribution of dividends, by directly using the various assets of the target.

The LBO is not the only financing method available for a merger-acquisition operation. There are several variants, including the Owner Buy Out (OBO), a kind of "self-sale" in which the company is taken over by its manager and majority shareholder, ideally accompanied by employee executives and other investors; the Leverage Management Buy Out (LMBO), where the target is acquired by its executive managers supported by investors; the Leverage Management Buy In (LMBI), which describes the acquisition of the target through the joint action of executives from a third-party company and investors; the Buy In Management Buy Out (BIMBO), which combines LMBO and LMBI... In addition to the financial leverage effect, LBO-type operations allow for diversification of management power related to the holding of shares by dispersing the control power of the acquirer.

LBO operations are generally financed by banking institutions or investment funds. In this context, banking institutions grant debts classified as senior, which constitute the main debt. Granted for a period ranging from five to seven years, the senior debt is characterized by the priority of its repayment as well as the guarantees required. It can be subscribed in the form of tranches, amortizable over different periods. Instead of turning to banks, acquirers can also seek funds from specialized entities called "mezzanine lenders" who grant so-called "mezzanine" debts. Mezzanine debt constitutes an intermediate debt between equity financing and a traditional loan. It is considered riskier than senior debt because its repayment occurs only after the latter. In return for this significant risk, investors generally receive securities giving them access to capital, such as OBSA or OCA, as well as a higher interest rate.

Company Law (en cours)

244. Techniques inherent in mergers and acquisitions

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Les notions juridiques connexes

244. Techniques inherent in mergers and acquisitions

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise