Acquisition vehicle

A sponsor does not buy a company in its own name or in the fund's. A new company is formed for the transaction, commonly called a bidco, and it is the entity that signs the purchase agreement, borrows the acquisition debt and holds the shares in the target. Above it there are usually further holding companies, which exist to separate different layers of capital and to give the equity somewhere to sit.

Three things follow from that structure and each shows up in interviews. The debt is at the vehicle and the acquired group rather than at the fund, so the lenders' claim is non-recourse to the sponsor. Security is granted over the shares in the target and over its assets, which is what allows a lender to take the business rather than sue for a debt. And the layering allows instruments to be ranked against each other, since something issued at a holding company above the borrower is structurally subordinated to everything at the operating level.

It also explains a line in the funding table that confuses people. The sponsor's equity is subscribed into the vehicle, not paid to the seller, and the vehicle then pays the seller out of the combined equity and debt proceeds. So the equity cheque and the price the seller receives are related but different numbers, and fees, refinanced borrowings and completion adjustments sit in between them.

In a public takeover the vehicle is also the named offeror, which matters because financing certainty rules attach to it. A bidder in a United Kingdom offer has to be able to satisfy the certain funds requirement at the vehicle level before an offer can be announced.