Today, let’s discuss the key participants involved in an LBO transaction and the role they play in leading the LBO to its success. But before proceeding further, you may want to take a glance at the following parts that highlight my previous write-ups on LBO.

Part1: Leveraged Buyout: An Overview

Part2: Leveraged Buyout: What makes a Strong LBO Candidate?

I’ll start this article with the financial sponsors and investment bankers, and offer insights in detail, followed by a note on investors and target’s management. As you read through it, you will unearth each of the stakeholder’s activities and how they look at the transaction. You will also discover that the sponsor, I-Banker and target management drive the deal.

(1) Financial Sponsors are the private equity firms (PE), merchant banking divisions of investment banks, hedge funds, venture capital (VC) funds and special purpose acquisition companies (SPACs). PE firms, hedge funds, and VC funds raise majority of their investment capital from third-party investors such as pension funds, insurance companies, endowments and wealthy families / individuals (also known as HNI).

This raised capital is organized into funds that are usually established as limited partnerships, in which the General Partner (GP) – the sponsor – manages the day-to-day activities of the fund and are compensated with 1-2% of the committed fund as management fee, besides 20% “carry” on the investment profit.

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