In a Leveraged Buyout (LBO), the role of banks is essential. Not only because they provide a large part of the financing needed to acquire the company, but also because they act as strategic advisors, guarantors of the project’s viability and neutral players who help to structure the operation with judgment and prudence.
When a financial institution decides to participate in an LBO, it not only lends money: it also validates the business plan, analyzes the risks and demands a level of financial discipline that often makes the difference between success and failure. Their involvement sends a clear signal: this project makes sense, is well structured and deserves trust.
It is true that it is their business, and it is also the promoters’ obligation to obtain the best possible conditions. But sometimes it is forgotten that the profitability expected by the banks in these operations is, in general, much lower than that demanded by the shareholders themselves, the PEs and other capital providers. If we were to ask a friend for money on the same terms, he would simply not give it to us. And rightly so.
For this reason, the criticism of banks is surprising (and often unfair). Without their technical support, analytical skills and willingness to take risks under reasonable conditions, many corporate transactions would simply not be possible.
