Lagging Indicator

An economic indicator that varies after the overall economy has changed. Examples include labor costs, business spending, unemployment rate, prime rate, outstanding bank loans, and inventory book value.

Later Stage

Expansion, replacement capital and buyout stages of investment. Compare with ‘Early Stage.’

Lead Investor

Investor who has contributed the majority share in a private equity joint venture or syndicated deal. See ‘Syndicated Deal.’ and ‘Syndication.’

Lead Manager/Lead Underwriter

The single underwriter that assumes leadership and financial responsibility for placing the securities offered in a public offering. On the cover of a prospectus, the Lead Manager/Underwriter is typically listed on the bottom of the page on the left-hand side, with the other underwriters listed to the right of the Lead Manager/ Lead Underwriter. See ‘Global Coordinator.’

Leavers and Joiners

(UK) The arrangements covering what happens to the profit interest (through carried interest or ownership of shares) of executives who leave an investee company or a venture capital fund; the provision for making a profit-sharing interest available to rising stars (new or young executives who previously did not have such a profit-sharing interest) or new joiners.

Lehman Formula

A compensation formula initiated by Lehman Brothers for investment banking activities, originally structured as follows: 5% of the first million dollars involved in the transaction; 4% of the second million; 3% of the third million; 2% of the fourth million; and 1% of everything thereafter (i.e., above $4 million). As a result of inflation, investment bankers today often seek some multiple of the original Lehman Formula.

Letter of Intent

A letter from one company to another indicating a general willingness or intention to engage in some type of transaction. It frequently precedes negotiation of a complete agreement and is typically intended by the parties not to be legally binding.

Leveraged Buy-out (LBO)

The acquisition of a company by members of management or outside investors with financing from investment bankers or other third parties. The financing is typically secured by the target company’s assets with repayment generated from the company’s retained or future earnings or sales of certain of its assets. See ‘Management Buyout (MBO).’

Leveraged Buy-out Fund (LBO Fund)

An investment fund or company focusing on financing leveraged buyouts.

Leveraged Recapitalization

Transaction in which a company borrows a large sum of money and distributes it to its shareholders.

LIBOR

The interest rate that the largest international banks charge each other in the London interbank market for loans.

Limited Liability Company or LLC

(USA) A non-incorporated association that resembles a corporation in some ways and a partnership in others. Under USA law, an LLC generally will be taxed as a partnership (meaning it will not pay separate income tax as an entity), but will enjoy the limited liability of a corporation. In other countries (such as the UK), a ‘limited company’ is generally equivalent to a corporation in the USA. See ‘C Corporation’ and ‘S Corporation.’

Limited Partner

A person having an interest in a limited partnership whose liability is limited to a fixed amount and who does not participate in the management of the partnership.

Limited Partnership

A partnership consisting of one or more general partners and one or more special partners (the ‘limited partners’) who are not liable for the debts of the partnership beyond their capital contribution. See ‘General Partnership.’

Liquidation or Liquidity Event

An event that allows a venture capitalist to realize a gain or loss on an investment. The ending of a private equity provider’s involvement in a business venture with a view toward realizing an internal return on investment. Most common exit routes include Initial Public Offerings, buy backs, trade sales and secondary buyouts. See ‘Exit Strategy.’

Liquidation Preference

A right typically attached to preferred stock under which, upon liquidation, holders of preferred stock receive payment of a specified amount, typically at least equal to the amount at which the preferred stock was originally issued, with priority over payments to other investors. In venture capital financings, the terms of the preferred stock typically will provide that a ‘liquidation’ is defined to include a trade sale or acquisition, or that the holders of preferred stock have the option to treat a sale as a liquidation. See ‘Multiple Preferences.’

Listed Company

A company whose securities have been admitted to the UKLA’s Official List and admitted to trading on the London Stock Exchange.

Listed Security

A security that has been accepted for trading on an exchange. To become a listed security, the issuer must satisfy the listing requirements of the relevant exchange or regulatory authority.

Listing

The quotation of shares on a recognized stock exchange. See ‘Float.’

Listing Particulars

When a company applies for a listing of its securities, in some circumstances listing particulars (or a prospectus) are required in accordance with the UKLA’s Listing Rules, giving information on the company, its accounts, directors and securities.

Listing Requirements

The standards to be satisfied for a security to be admitted to trading on an exchange. Listing requirements vary among exchanges and regulatory authorities but commonly include financial standards and levels of market capitalization.

Living Dead

A company that performs just well enough to stay in existence but not well enough to generate any return for its investors.

Lock-up Agreement

Agreement between an underwriter and certain stockholders of a company requiring the stockholders to refrain from selling their shares in the public market for a specified period after a public offering. In the USA, this period is customarily 180 days after an IPO and 90 days after subsequent offerings, but may range from as little as 30 days to as much as one year or more.

Lock-up Period

The period of time for which a lock-up agreement is in operation. Underwriters of IPOs generally insist upon a lock-up period for large shareholders of at least 180 days to avoid a disorderly market. The management, company directors and venture capitalist are the types of shareholders that are usually subject to a lock-up.

London Inter-Bank Offer Rate (LIBOR)

The interest rate that the largest international banks charge each other in the London inter-bank market for loans. This is used as a basis for gauging the price of loans outside the inter-bank market.

London Stock Exchange

The primary stock exchange in the UK and one of the principal international stock markets. See ‘FTSE 100.’

Long Form Report

In the UK, a report jointly commissioned by the issuer and the sponsor that is customarily undertaken by the issuer’s accountants/auditors and reports extensively on the accounting, financial, trading, management, and corporate governance aspects of the issuer’s business. The report is not reproduced in the prospectus or other offering document but often serves as a principal reference source in preparing the prospectus as well as background due diligence and verification material. See ‘Short Form Report.’

Lookback Option

Call or put option whose strike price is not determined until the option is exercised.

LPS

(UK) See ‘Limited Partner’ and ‘Limited Partnership.’