A leveraged build-up (LBU) can best be described as the consolidation of an industry financed with borrowed funds accomplished by the formation or acquisition by an investor group of a platform company followed by the acquisition of multiple companies engaged in the same line of business as the platform company. When executed properly, the build-up creates a consolidated entity that is more profitable than were the individual components. Economies of scale become available through increased purchasing power and elimination of redundant costs (executive salaries, rents, accounting functions, etc.).
LBUs present many issues common to more traditional cash flow or asset-based financings. In addition, they also present unique challenges. This article describes some
