Corporate Governance Definitions

1) LBO: The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.

TYPES:

MBO

A transaction where a company’s management team purchases the assets and operations of the business they manage. A management buyout (MBO) is appealing to professional managers because of the greater potential rewards from being owners of the business rather than employees. MBOs are favored exit strategies for large corporations who wish to pursue the sale of divisions that are not part of their core business, or by private businesses where the owners wish to retire. The financing required for an MBO is often quite substantial, and is usually a combination of debt and equity that is derived from the buyers, financiers and sometimes the seller.

MBI

Purchase of a firm by the outside investors who often retain the existing management team and nominate their representatives to the board of directors. Management buy-ins generally occur where the outside investors believe the firm's products can generate greater than current yields with change in strategy and/or infusion of capital.

IBO

When an institutional investor, such as a private equity firm or a venture capitalist firm, acquires a controlling interest in a separate company. Institutional buyouts are the opposite of management buyouts (MBO), in which a business's current management acquires a large part of the company. Typically, the investor in an IBO will look to dispose of its stake in the company within a certain time frame.

BIMBO:

A form of a buyout that incorporates characteristics of both a management buyout and a management buy-in. A BIMBO occurs when existing management - along with...