Concept-of-the-month-Earn-out-finenza

kicker is a right, an exercisable warrant, that is added to a debt instrument as an incentive for potential investors, giving the debt holder the potential option to buy shares in the issuer. It is used exclusively for the benefit of lenders to increase their expected return on investment (ROI), as it allows them to participate in any increase in the value of the equity property.

The lender provides a loan at a lower interest rate and, in return, obtains an equity position in the borrower’s business. The equity-kicker is structured as a conditional reward, in which the lender obtains an equity stake that will be paid off at a future date when the company reaches specific performance targets.

Most companies that offer a built-in equity-kicker option are unable to access credit from traditional lenders because they are early stage companies that have not yet accumulated enough assets. Equity-kickers are often used for leveraged buyouts (LBOs), management buyouts (MBOs), and capital recapitalizations, as they are considered too risky for traditional financing offered by senior and guaranteed lenders.

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Concept of the month Earn Out

Concept of the month Earn Out

In a company sale and purchase agreement, the earn-out is a portion of the purchase price that is subject to the achievement of certain (usually financial) milestones that will be verified after the closing of the sale and purchase. One of the main reasons earn-outs...

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Concept of the month EBITDA

Concept of the month EBITDA

In the M&A and sell-side market, EBITDA is a very helpful tool for assessing a business’ market value and marketability. EBITDA is a financial indicator (an acronym for "Earnings Before Interest, Taxes, Depreciation and Amortisation") that provides a true picture...

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