The funding of leveraged acquisition deals by way of different
layers of funding has become more common in South Africa following
the experience of the US and European markets. A leveraged
acquisition or LBO (leveraged buy out) typically involves the
acquisition of a company by a private entity where the ratio of the
debt component of the financing in relation to the equity component
is high. In this article we provide a brief look at the different
layers of leveraged funding and our experience of this type of
financing in South Africa.
The layers of funding generally encountered in the South African
market include senior debt, second lien debt, mezzanine debt and
PIK funding. An LBO transaction would very seldom include all of
these layers, but one or more of these layers of funding would
typically be used in a larger LBO. As in the US and Europe, multi
layered debt in South Africa has originated largely due to the
economic drive to achieve higher returns on equity.
