How to Use Leveraged Buyouts

How to Use Leveraged Buyouts

While many of this country’s major corporations are well aware of the strategy known as a leveraged buyout, it is virtually unknown to small business owners and private citizens who are seeking to take the plunge into business. While this may sound strange, the way to execute full leveraged buyouts is by using the assets and cash flow of an existing successful company to finance the actual purchase of that company. Here is how you would have to go about conducting a leveraged buyout.

Conducting leveraged buyouts

Here are the steps necessary to effectively pull off a leveraged buyout:

  • Find the right business to buy – this should be something you are really passionate about, so you can throw yourself into it
  • Negotiate with the seller – settle on a purchase price, and agree on how much up-front cash has to be involved in the sale. If it helps the sale proceed, inform the seller that he/she can receive 10 to 20 years of ongoing payments in lieu of up-front cash.
  • Arrange for an asset-based loan – next, you’ll need to find an asset-based lender who is willing to loan you the value of the assets in the company you’re about to buy. Of course, you don’t own those assets yet, but you can still pull it off by also arranging for a swing loan.
  • Arrange for a swing loan – a swing loan will allow you to get the down payment you need to purchase the company, so you can be the legitimate owner of its assets, and those assets can be used to secure the asset-based loan.
  • Finalize both transactions – in the same day, you can finalize both these transactions and come out as the new owner of a business – without having spent a dime of your own money.

Considering a leveraged buyout?

This type of transaction generally requires some considerable expertise and knowledge, so you’ll need that kind of support in your corner when trying to undertake such a deal. Contact us at Brightview Commercial Capital so we can lend you the kind of support you’ll need to make it work for you.