Chapter 11 - Business Reorganisations

Question 1

Demerger

Answer 1

• Distribute shares in proportion to original shareholding
• Concentrate on core business
• Easier for investors to analyse

Question 2

Sell-Off

Answer 2

Sold to third party for cash

• raise cash
• non core function
• loss making division
• offered good price

Question 3

Initial Public Offering (IPO)

Answer 3

Sale of share of company to public

Question 4

Franchise

Answer 4

Business concept sold for fee and/or % of profit

Question 5

Management Buy Out (MBO)

Answer 5

Team managers buy oit or part of business

e.g. financing

• Management team ( 1 - 5%)
• Banks - senior (secured), subordinated (less secured) (30-40%)
• Bank/Investors - Mezzaine (unsecured) (20-30%)
• Venture Capital (20-30%)

Question 6

Leveraged Buyout

Answer 6

Investor buys controlling interest, finances significant % through borrowing

Question 7

Venture Capitalist

Answer 7

• Invest in businesses with high potential growth, where management have proven track record
• Will want exit plan
• ‘Rachet System’ - management get bigger % of equity if exceed performance targets