Chapter 29 - The LBO Mechanics Special

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The LBO Mechanics Special

EV-Equity Bridge, Completion Mechanisms, W&I, Advisor Fees, Funds Flow & The Playbook Tricks That Make or Break a Deal Overview

Chapter Roadmap

This chapter is the hardcore technical core of deal execution - the nitty-gritty mechanics that separate the associates who bluff from the ones who actually run the deal. Every topic here is one that you will be asked about in the boardroom, in an interview, or at 2am on closing night. Part 1: The EV-Equity Bridge - The single most important construct in M&A. Debt, cash, debt-like items, pension, working capital peg, tax, minorities, ticker, leakage. Twenty beats of deep drilling. Part 2: Completion Mechanisms - Locked box vs. completion accounts, reference date, permitted leakage, interest on equity, dispute resolution, expert determination. Part 3: W&I Insurance - How the policy is priced, what is excluded, retention, de minimis, stapled vs. seller-buyer flips, synthetic W&I, title insurance. Part 4: Advisor Fees - Success fees, retainers, incentive mechanisms, lehman formulas, abort fees, tail periods, expense caps, and the fee economics of each workstream. Part 5: Funds Flow - The plumbing. Flow of funds memos, paying agent mechanics, wire coordination, escrow agents, PTO (payment to order), and what goes wrong at closing. Part 6: Classic Playbook Tricks - The tactical moves that shift a few hundred million between buyer and seller without anyone noticing at first glance. Part 1 · EV-Equity Bridge

The Central Identity of Every Deal

Every M&A deal - every single one - collapses into one identity. Memorise it. Tattoo it. This is the equation that governs every number on the SPA signature page: The Master Equation Enterprise Value (EV) − Financial Debt + Cash & Cash Equivalents − Debt-Like Items + Cash-Like Items ± Working Capital vs. Target (the "peg") − Minority Interests + Investments in Associates (at FV) − Dividends declared but not paid + Ticker / Interest on Equity − Permitted / Non-permitted Leakage − Transaction costs borne by seller = EQUITY PURCHASE PRICE EV is the economic value of the business operations. Equity value is what the seller actually receives in their bank account. The bridge is the set of adjustments that walks you from one to the other. Every single line is negotiated. Every single line is worth millions. The buyer wants a low equity price; the seller wants a high one; the bridge is the battleground. Part 1 · EV-Equity Bridge