LBO (Leveraged Buy-Out)

This is another term imported from the US and is almost the same as a Management Buy-Out (MBO) (see below) but is characterised by the high level of borrowings used to fund it, usually financed by 'leveraging' the assets of the company concerned and securing loans against them. The proportion of debt to equity therefore is usually high.

Lock-Out

This is an agreement between two parties - say the seller and potential acquirer of a company - where it is agreed that for a limited period of time, the seller will not enter into negotiation with any other party.

London Stock Exchange (LSE)

The LSE remains one of the biggest and most important of the international stock exchanges. It enables the raising of capital for UK and International companies via equity, debt and depositary receipt issues. Following the 'big bang' of 1986, it now trades mainly via television screens and telephones. Several kinds of businesses which were once separate such as market making, broking/dealing, or investment analysis, have now been formed into groups of financial services (hence the need for Chinese Walls and the avoidance of insider dealing- see above) usually called securities houses or merchant/investment banks. Dealers in shares now sit in front of computers instead of waving bits of paper at each other across noisy, crowded dealing floors, as they once did. The LSE became a listed public company itself in 2001. It operates the AIM, launched in 1995 (see above) and the techMARK, in 1999, an international market for innovative technology companies. It has also launched techMARK mediscience, an international market for healthcare companies. It is intent on international expansion in its own right, having established for example, a local presence in Stockholm for Nordic companies, and is working closely with the Hong Kong Exchanges and Clearing Limited to make joint country listings possible.

Market Capitalisation

This is the total value that a stock market attaches to a company's equity or total shares, calculated by multiplying the number of shares - that is issued share capital - by the current quoted price of the shares. Generally referred to as 'market cap'. Clearly, it can only refer to listed companies.

Merchant Bank

The original merchant banks were founded as the financial arms of merchant trading companies to finance the needs of merchants, hence the name. Merchant Banks tend to concentrate on corporate finance, (mergers, acquisitions, takeovers, flotations et al) investment banking and other services, but not on areas such as running current accounts - which they leave to the big clearing banks - taking deposits or issuing cheques. They do not deal with the public - unless occasionally if the individuals are extremely rich - and concentrate on companies and their specific financial needs.

Mezzanine Finance

A form of funding, usually for new companies, which lies somewhere between debt and equity (shares). This gives it a certain priority in the event of a liquidation or payout. Mezzanine Finance, in whatever form it is provided, is basically that intermediate element of funding which is too risky to justify a bank loan because, say, there are no assets against which to secure the loan, but which does not pay enough to justify equity funding. As the risk is higher than that for senior debt the interest charged is normally higher.

Management Buy-Out (MBO)

This is simply the takeover of a company, or perhaps one of its subsidiaries, by a group of its existing managers who set up a new company, usually acting together with a funder such as a venture capitalist, to buy the old one. MBOs are popular as the risks involved are perceived to be lower. This is because the company concerned usually has an established track record, and the managers buying in usually know the business well.

Management Buy-In (MBI)

This is almost the same as a MBO but in this case, a group of managers acquires a company, again usually with the help of a venture capitalist, where they were not already employed as managers. This may be because the internal management is not perceived to have sufficient expertise to run the company as an independent business or cannot raise the funding to buy it out.

NASDAQ (National Association of Security Dealers' Automated Quotations)

NASDAQ is now the world's largest electronic stock market with trading executed via its computer system and telecommunication system. Over 1.3 million people and organisations in over 83 countries use it. In March 2001, it acquired a majority stake in EASDAQ (see above).

Official List

Known also as the Main Market, the Official List is the LSE's main market for listed companies. It has a number of entry requirements and is maintained by the UKLA (see below).

Private Equity

A broad term, private equity is basically investment in the shares of private, unquoted companies, that is those companies not listed on a stock exchange. Private equity is a generic term covering the entire industry from buy-outs to venture capital. Private equity is usually provided by specialist private equity funds and can be applied to a wide variety of situations including MBOs, MBIs, BIMBOs, or 'public to private' transactions. Private equity funds are usually those which raise their funds from a variety of external sources such as insurance companies or pension funds, though other institutions such as some banks, often run their own private equity funds. Private equity is also provided by business angels (see above).

Public Limited Company (PLC, plc)

A public limited company must have a minimum authorised share capital (see above) of £50,000 of which a minimum of a quarter, £12,500 must be paid up. Only a public limited company can offer its shares to the public. The regulation of public limited companies is stricter than that of private ones. Any limited company is a private one if it does not comply with the qualifications required to be a public one. The concept of the plc or PLC (it can be either, and its name must end with those initials) arose from the EC's second directive on company law and was introduced in the 1980 Companies Act.

Ratchet

A ratchet is designed to be an incentive. Generally ratchets affect the split of equity between separate shareholders, say the private equity investors and the management of a company, depending on performance of the company. That ratchet would usually operate to increase the shareholding of management in the venture if it performs particularly well.