medium · Investment Banking ma-lbo
In a competitive LBO auction, why might a financial sponsor be able to outbid a strategic buyer?
- The sponsor can use a dividend recap halfway through the hold to boost their IRR, allowing them to pay a higher entry price today.
- Financial sponsors are legally exempt from paying any capital gains taxes on profitable exits from their portfolio companies.
- Sponsors are legally required under federal securities regulations to pay a 20 percent control premium over the prevailing market price.
- Sponsors can always realize substantially higher synergies from the acquired target than a strategic buyer operating in the same industry could.
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