Equity Bridge

An equity bridge, also known as an equity bridge loan or bridge equity, is a short-term loan provided by investment banks to sponsors (typically private equity firms) in leveraged buyouts (LBOs) to finance the equity portion of the deal.

The purpose of an equity bridge is to allow the sponsor to contribute a smaller amount of equity upfront when acquiring a company. The sponsor can then repay the equity bridge loan later, usually after the acquisition closes, using the proceeds from the sale of high-yield bonds, or from the cash flows of the acquired company.

This financing structure allows the sponsor to increase the internal rate of return (IRR) on the investment by reducing the amount of time that the equity is invested in the deal. It’s important to note that while an equity bridge can enhance returns, it also increases the financial risk of the transaction, as it introduces additional leverage.