Rights Issue

You may suggest that a team issues new shares in exchange for cash instead of taking up a new loan. This is viable if the team is growing very fast, but has a low equity. The advantage of a rights issue is that the company may then borrow more money, because the equity/debt ratio has been improved.

The company issues, say 10M of new equity. The market must be open for the other companies, but you as the bank act as the underwriter.

If the Market Value is 50, the existing equity is 10M, the new equity will be 20M, so the rights issue is for 50% of the company. The price of the shares should be at Market Value minus a discount of say 20-40%%.

In this example, for every 5M minus 20%, in cash the other companies may buy 2M of share in the equity, so every 4M in cash buys 1M of shares. Suppose one of the teams agree to buy for 8M. They will receive 2M worth of shares = 10% of the issuing company.

The issuing company will of course have to pay dividend = 10% of the cash they receive, in this case 10%*8M =approx. 1M.