Leveraged Buyouts (LBO) in private equity deals

Deal structure, risk structure and governance implications in LBO transactions

Business & Finance, Finance & Investing, Finance
Cover of the book Leveraged Buyouts (LBO) in private equity deals by Anonymous, GRIN Verlag
View on Amazon View on AbeBooks View on Kobo View on B.Depository View on eBay View on Walmart
Author: Anonymous ISBN: 9783638044547
Publisher: GRIN Verlag Publication: May 8, 2008
Imprint: GRIN Verlag Language: English
Author: Anonymous
ISBN: 9783638044547
Publisher: GRIN Verlag
Publication: May 8, 2008
Imprint: GRIN Verlag
Language: English

Seminar paper from the year 2007 in the subject Business economics - Investment and Finance, grade: 1,3, European Business School - International University Schloß Reichartshausen Oestrich-Winkel, course: Corporate Finance, 82 entries in the bibliography, language: English, abstract: Igniting in 2005, the discussion about highly leveraged transactions conducted by financial institutions became a matter of great controversy in German politics as well as in the media. Fuelled by an influential voice in politics, LBO firms became the face of capitalism's evil by calling them a 'Heuschrecke', an animal much feared in history for its exploitive behaviour and risks to the mediaeval agrarian economy (Die Zeit, 2005). In terms of today's Heuschrecke, according to public voice, downsizing and raiding represent the major risks attributed. Empirics show that the risk of downsizing in LBOs is falsified and that the occurrence of raids is rather irrelevant in today's buyout universe. However, even if both risks held, each would exhibit a comparably low impact on the economy as a whole. Contrary, the empirically evident high-impact risk of over-indebtedness in leveraged transactions is widely neglected. The negligence of this risk-issue is dangerous, particularly with regard to the recent developments in the LBO industry, debt capital markets and the world's economy. First, analysing the latest LBOs conducted, it appears that the historical failures, such as the buyouts of Revco and RJR Narbisco are widely forgotten, as gearing ratios have become aggressive again. Second, the subprime crisis, which was exported from the US real estate sector into global capital markets, caused liquidity shortages - AA rated banks were not willing to lend money to their equally rated peers anymore - which led to a credit crisis. This credit crunch provoked that, even though in the US the prime rate has been reduced by 50 bp, and in the Eurozone the prime rate was not increased as planed, 'money became expensive'; FIBOR, LIBOR and EURIBOR sharply increased and remained high. This resulted in high debt funding costs. Third, taking a look at the world economy, America might face an economic downturn in the near future with decreasing consumption and increasing inflation. Each of the three aspects alone increases the default risk in a highly leveraged firm. In a scenario where all three jointly appear, the probability of default sharply increases. In addition to the risk named, the threat an LBO imposes on global debt capital markets is evident, therefore, it can not be ignored any longer in Europe. While it was already heavily discussed in America's late 80s buyout-boom, it slowly gains prominence in discussions about LBO transactions.

View on Amazon View on AbeBooks View on Kobo View on B.Depository View on eBay View on Walmart

Seminar paper from the year 2007 in the subject Business economics - Investment and Finance, grade: 1,3, European Business School - International University Schloß Reichartshausen Oestrich-Winkel, course: Corporate Finance, 82 entries in the bibliography, language: English, abstract: Igniting in 2005, the discussion about highly leveraged transactions conducted by financial institutions became a matter of great controversy in German politics as well as in the media. Fuelled by an influential voice in politics, LBO firms became the face of capitalism's evil by calling them a 'Heuschrecke', an animal much feared in history for its exploitive behaviour and risks to the mediaeval agrarian economy (Die Zeit, 2005). In terms of today's Heuschrecke, according to public voice, downsizing and raiding represent the major risks attributed. Empirics show that the risk of downsizing in LBOs is falsified and that the occurrence of raids is rather irrelevant in today's buyout universe. However, even if both risks held, each would exhibit a comparably low impact on the economy as a whole. Contrary, the empirically evident high-impact risk of over-indebtedness in leveraged transactions is widely neglected. The negligence of this risk-issue is dangerous, particularly with regard to the recent developments in the LBO industry, debt capital markets and the world's economy. First, analysing the latest LBOs conducted, it appears that the historical failures, such as the buyouts of Revco and RJR Narbisco are widely forgotten, as gearing ratios have become aggressive again. Second, the subprime crisis, which was exported from the US real estate sector into global capital markets, caused liquidity shortages - AA rated banks were not willing to lend money to their equally rated peers anymore - which led to a credit crisis. This credit crunch provoked that, even though in the US the prime rate has been reduced by 50 bp, and in the Eurozone the prime rate was not increased as planed, 'money became expensive'; FIBOR, LIBOR and EURIBOR sharply increased and remained high. This resulted in high debt funding costs. Third, taking a look at the world economy, America might face an economic downturn in the near future with decreasing consumption and increasing inflation. Each of the three aspects alone increases the default risk in a highly leveraged firm. In a scenario where all three jointly appear, the probability of default sharply increases. In addition to the risk named, the threat an LBO imposes on global debt capital markets is evident, therefore, it can not be ignored any longer in Europe. While it was already heavily discussed in America's late 80s buyout-boom, it slowly gains prominence in discussions about LBO transactions.

More books from GRIN Verlag

Cover of the book Die zeitgenössische Psychoanalyse. Behandlungstechnische Implikationen der intersubjektiven Perspektive by Anonymous
Cover of the book Der Transfer von Personalpraktiken in multinationalen Konzernen by Anonymous
Cover of the book Einsatz von audiovisuellen Medien im Religionsunterricht - Der Film by Anonymous
Cover of the book Anreizsysteme und wertorentiertes Management by Anonymous
Cover of the book Spezielle Sakramentenlehre der katholischen Kirche - 4. Buße by Anonymous
Cover of the book Die Furcht vor Kriminalität im öffentlichen Raum bei älteren Menschen by Anonymous
Cover of the book Reputationseffekte bei Online-Auktionen am Beispiel eBay by Anonymous
Cover of the book Die militärische Krise - Die Führungsschicht und die Heeresreform des Gallienus by Anonymous
Cover of the book Besessenheit, Geistervertreibung und Seelenwanderung im Judentum by Anonymous
Cover of the book Shipbuilding in Scotland by Anonymous
Cover of the book The source of food price swings and their effect on developing economies by Anonymous
Cover of the book Sonnenallee - Die Bedeutung des Films für die Erinnerungskultur by Anonymous
Cover of the book Implementing Health SWAp in Mongolia: From Aid Coordination to Sector Management by Anonymous
Cover of the book Descartes Fundament by Anonymous
Cover of the book Das Sterben alter Menschen in der modernen Gesellschaft by Anonymous
We use our own "cookies" and third party cookies to improve services and to see statistical information. By using this website, you agree to our Privacy Policy