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Angels, Dragons and Vultures: How to Tame Your Investors And Not Lose Your Company by Simon Acland

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Sales to financial buyers

In the private equity world, as distinct from venture capital, there have been periods when a high proportion of exits have been delivered by management buy-outs. A business is bought, leveraged with bank debt, and grown or improved a little. The business generates enough cash to pay down some of the debt. Then the original investor sells the business to a new investor for an overall price not very much higher than he paid. Nevertheless, because the leverage has been reduced, he is able to take a tidy profit on his equity. The new investor re-leverages the business, and the process starts again. Successive investors make money by recycling essentially the same asset and achieve their returns through the use of leverage. ...

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