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Understanding MBO, MBI, LBO, and Financing Types in Corporate Acquisitions

This glossary provides definitions for key financial terms related to corporate acquisitions, including Management Buy-Out (MBO) where a company's management gains full control, and Management Buy-In (MBI) where external managers do so. It also covers Leveraged Buy-Out (LBO), a technique using minimal equity and significant debt, and Leveraged Management Buy-Out (LMBO) which heavily relies on debt. Additionally, it explains junior debt, senior debt, and mezzanine financing, illustrating the varying levels of risk associated with each debt type.

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Understanding MBO, MBI, LBO, and Financing Types in Corporate Acquisitions

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  1. Glossary • Management Buy-Out (MBO): Transaction in which a company’s management acquires full or joint control thereof • Management Buy-In (MBI): Transaction in which an external management acquires full or joint control of a company • Leveraged Buy-Out (LBO): Financial technique which consists in acquiring control over a company with a limited amount of Equity and a more significant amount of debts, which are repaid using future cash flows • Leveraged Management Buy-Out (LMBO): MBO transactions involving heavy reliance on indebtedness • Junior debt: The part of a debt that carries the greatest risk, often contributed by financial investors and taking the form of subordinate and/or convertible obligations. It is generally unsecured. • Senior debt: The part of a debt that carries the least risk, often contributed by banks or other lenders. It is often secured by shares. • Mezzanine financing: Form of intermediate debt between the junior and senior debt in terms of risk, subordination and repayment.

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