Permanent Podcast: Real Talk About Private Equity and Buying, Selling, and Operating Small Businesses
Financial Structures: Cash, Cash, Cash... And Other Considerations (EP.18)
Sep 23, 2019
The podcast explores the types of cash at closing and their impact on a company after the close. They discuss the consequences of putting debt on a company's balance sheet and the complexities of leveraging multiple types of debt. The chapter emphasizes the importance of balancing current value with long-term viability in private equity and cautions against entering complex capital structures.
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Quick takeaways
- Equity, senior debt, and subordinated debt make up the amount of cash at closing in a business deal.
- Excessive debt can decrease the future value of a company, so sellers need to carefully consider the amount of cash at closing.
Deep dives
Components of financial deal terms
The podcast episode discusses the components of financial deal terms when buying or selling a business. It emphasizes the importance of understanding the amount of cash at closing, which is a combination of equity, senior debt, and subordinated debt. It explains that equity is the cash injected by the buyer, senior debt is usually a bank loan with priority repayment, and subordinated debt carries higher risk and terms. The episode highlights the impact of debt stacking on the value of common equity, urging sellers to be cautious about the amount and type of debt involved in the deal.
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