IOB LBO key terms

An acquisition of a company financed largely with borrowed money, where the target's own cash flows and assets back the debt and the buyer contributes only a modest equity slice.

Total debt divided by EBITDA or by total capital, showing how much of a company's funding comes from borrowing rather than shareholders' money.

Cash available for debt payments in a period divided by the principal and interest due in that same period, indicating how comfortably borrowings can be repaid.

EBITDA or operating profit divided by interest expense, measuring how many times earnings can absorb the interest bill before principal repayment is considered.

Borrowing that ranks first in line for repayment and is usually secured on assets, carrying the lowest interest rate and the tightest conditions of any debt in the structure.

Subordinated borrowing sitting between senior debt and equity, typically unsecured or lightly secured, charging a higher margin and often carrying warrants or payment-in-kind interest.

Interest settled by adding it to the outstanding principal rather than paying cash, which preserves liquidity during the holding period but increases the eventual debt burden.

A contractual ranking that places one creditor behind another for repayment, so the junior lender is paid only after the senior lender's claims are satisfied.

The mix of debt, hybrid instruments and equity used to fund a company, which determines its fixed payment obligations, flexibility and overall financial risk.

The cash or assets the sponsor invests from its own funds in a deal, representing the first loss position and the base on which the target return is calculated.

The annualised discount rate that makes the present value of a deal's cash inflows equal its outflows, used to compare investments with different timing of returns.

Total value returned to the investor divided by the amount invested, expressed as a multiple and ignoring how long the money was tied up.

The valuation multiple, such as EV/EBITDA, assumed when a sponsor sells a company, which strongly drives realised returns alongside earnings growth and debt paydown.

The total value of a business to all capital providers, calculated as market capitalisation plus net debt, and used as the base for valuation multiples.

Earnings before interest, tax, depreciation and amortisation, a rough proxy for operating cash generation widely used as the denominator in leverage and valuation multiples.

A diligence review that tests whether reported profits reflect sustainable trading rather than one-off items, accounting choices or aggressive revenue recognition.

Structured investigation of a target's financial, legal, tax, commercial and operational position before signing, so the buyer can price and structure the deal accurately.

A completion mechanism that compares normalised working capital at closing with an agreed target and shifts the price to reflect the difference.

A loan feature requiring a set share of surplus cash to repay debt early, reducing leverage over the holding period but limiting money available for investment or distributions.

A promise in a loan agreement, either requiring the borrower to maintain financial ratios or restricting actions such as extra borrowing, asset sales or dividend payments.

A specified breach, such as missed payment or covenant failure, that lets lenders demand immediate repayment or enforce security over the borrower's assets.

The collateral and guarantees granted to lenders, such as share pledges, mortgages and account charges, which they can enforce if the borrower defaults.

A contract among lenders at different levels of the structure setting out payment priority, enforcement rights and how decisions are made when trouble arises.

A private equity or similar investment firm that organises a buyout, raises the equity and debt, and manages the investment through to exit.

A reward arrangement giving the target's executives shares, options or a share of exit proceeds if agreed value targets are met, aligning them with the sponsor.

The time between a sponsor's acquisition of a company and its eventual sale or listing, during which value is built and debt is repaid.

Accounting treatment that records acquisition debt in the acquired company's own books, so its balance sheet and reported leverage reflect the financing of the deal.

A smaller company bought by a portfolio business to add products, customers or geography, often at a lower multiple than the platform itself commands.

A restructuring of a company's debt and equity mix, often used to return cash to owners by replacing equity with new borrowing or to repair an over-levered balance sheet.

Raising new debt to pay a distribution to shareholders, letting a sponsor take cash out early while leaving the company carrying more borrowing.

Statements a seller makes about the target's condition and affairs, which support price negotiation and may be backed by warranty and indemnity insurance.

A policy protecting buyers or sellers against losses from breaches of deal warranties, reducing the amount held back in escrow at completion.

The process of identifying a client and verifying its ownership, control and source of funds before onboarding, required under anti-money-laundering rules.

The identity of the natural persons who ultimately own or control a legal entity, which must be identified and verified even through layered corporate structures.

Laws, rules and internal controls designed to stop criminals disguising the origin of illicit funds through financial institutions or corporate transactions.

Extra scrutiny applied to higher-risk clients or transactions, such as those involving complex offshore ownership or politically exposed persons, beyond standard checks.

A loan to a borrower already carrying substantial debt, typically rated below investment grade and syndicated to institutional investors such as collateralised loan obligations.

Assessment of environmental, social and governance risks and opportunities in a target, including regulatory exposure, labour practices and board quality, before committing capital.

A loan whose margin adjusts according to whether the borrower meets agreed sustainability performance targets, tying financing cost to measurable ESG outcomes.

Mandatory indicators under EU sustainable finance rules showing how an investment harms environmental and social factors such as emissions, biodiversity or worker safety.

Presenting a product, company or financing as more environmentally or socially responsible than it really is, misleading investors and regulators.