Very risky business

Author: | Published: 1 Jul 2007

One of the more notable developments in the capitalization of acquisition financings by private equity funds has been the evolution of what are being called equity-bridge financings. In an equity bridge, all or part of the lead arrangers in the debt financings for the acquisition agree to co-invest in the equity of the target (or one of its holding companies).

Equity bridge arrangements allow sponsors to avoid forming clubs to purchase a company. Club deals tend to move at a slower pace than a single sponsor deal, as the participants negotiate both deal terms with the target and economic arrangements among themselves. Equity bridges allow a single sponsor to move quickly and act decisively. Partners can be brought into the deal later as part of the sell-down of the...