In finance, a "bought deal" (also called a "bought-out deal") is a type of stock offering where an investment bank or other sponsor buys the entire issue of shares from a company before offering them to the public. A "share deal" is a company acquisition where the purchaser buys the company's shares rather than its assets. The term "dealt out" can also refer to the dilution of shares, where new shares are issued, reducing the value of each existing share.
Here's a more detailed explanation:
Bought Deal:
How it works:
A company wants to raise capital by issuing shares.
Instead of directly offering them to the public, it sells the entire issue to
an investment bank or sponsor (the "bought deal" underwriter).
Underwriter's role:
The underwriter then resells those shares to
investors, potentially at a higher price than the initial purchase price,
earning a profit.
Benefits for the company:
This method can be faster and more certain for the
company, as it receives the funds upfront. It also eliminates the risk of the
offering being undersubscribed.
Benefits for the underwriter:
The underwriter guarantees the sale of the shares and
earns a spread between the purchase price and the resale price.
Risk for the underwriter:
The underwriter takes on the risk of not being able to
sell the shares at a profitable price.
Share Deal (Company Acquisition):
How it works: A company is acquired by another company
by buying its outstanding shares.
Asset Deal (Alternative): In contrast to a share deal,
an asset deal involves acquiring the company's assets (e.g., buildings,
equipment, intellectual property) instead of the shares.
Dilution:
How it works:
When a company issues new shares (dilution), the
ownership percentage of each existing shareholder decreases.
Impact on existing shareholders:
The value of each existing share can be diluted, as the
company's total number of shares increases.
A "bought deal" in the context of sports
teams refers to a situation where a small number of investors, typically a
group of six, agree to purchase a team outright. This could involve a private
placement offering or a negotiated agreement to acquire the team's shares. The
process involves due diligence, financial analysis, and potentially a reverse
merger to bring the team's ownership to a public or private structure.
Here's a more detailed breakdown of how a group of six
players might attempt a bought deal:
1. Identifying the Target Team:
The first step is to identify a team that is either
for sale or open to a potential acquisition. This could involve researching
teams that are in financial difficulties, facing ownership changes, or are
looking to raise capital.
2. Forming the Investment Group:
The six players would need to form a cohesive
investment group, possibly with the help of financial advisors or investment
bankers. This involves agreeing on the investment strategy, risk tolerance, and
how the team will be managed.
3. Conducting Due Diligence:
A thorough due diligence process is crucial. This
includes analyzing the team's financial statements, contracts, player
contracts, stadium, and other assets. They would need to understand the team's
revenue streams, expenses, and overall business model.
4. Valuation and Financing:
The team's valuation needs to be established, which
will be a key factor in determining the purchase price. Financing will be needed
to acquire the team, and options could include loans, private equity, or a
combination of methods.
5. Negotiation and Legal Agreements:
The group would need to negotiate with the current
owners, possibly through a formal offer or negotiation process. Legal
agreements would need to be drafted and reviewed by legal counsel to ensure a
smooth and legal transaction.
6. Public or Private Offering:
Depending on the team's size and the group's goals,
the acquisition could be structured as a private placement offering (selling
shares to a limited number of investors) or a reverse merger (acquiring a
publicly listed company to gain public listing for the team).
7. Post-Acquisition Management:
Once the deal is finalized, the group would need to
implement a management plan, potentially involving a new management team and
strategic initiatives to improve the team's performance and profitability.
Example:
Imagine a scenario where a team is struggling
financially and is open to a potential acquisition. A group of six experienced
players could form an investment group, conduct due diligence, secure
financing, negotiate with the current owners, and potentially offer a buyout
deal through a private placement or reverse merger.
Important Considerations:
Regulatory Compliance:
All aspects of the deal must comply with relevant
regulations and legal frameworks, particularly in sports leagues with specific
ownership rules.
Financial Feasibility:
The group needs to have a solid financial plan and be
able to demonstrate their ability to support the team's operations and
long-term goals.
Due Diligence:
A thorough due diligence process is essential to
understand the team's risks and opportunities.
Negotiation:
The ability to negotiate effectively with the current
owners and secure favorable terms is crucial.
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