Abstract

Based on the study of the works of domestic and foreign authors, the article presents a decompositional model of value creation when conducting business acquisition transactions with the involvement of debt capital (LBO), discloses the content of its main elements. Clarification of direct and indirect sources of value creation for debt financing transactions, as well as factors affecting their value, creates a theoretical basis for improving financial analysis and evaluating the effectiveness of LBO transactions, contributing to their development.

Highlights

  • The leveraged buyout (LBO) was much debated in the wake of the takeover wave of the 1980s when the phenomenon first gained momentum

  • We present and analyse the recent leveraged buyout of Danish incumbent telecom company TDC A/S (“TDC”) by Nordic Telephone Company ApS (“NTC”) – a consortium consisting of the private equity limited partnerships Apax Partners Worldwide LLP, The Blackstone Group International Limited, Kohlberg Kravis Roberts & Co

  • In contrast to the takeover forms of merger and acquisition (M&A), the leveraged buyout most commonly relies on the assets of the target to serve as collateral for loan financing, enabling the financial sponsor and/or management to invest in an organisation without having the assets-in-place of a strategic buyer12

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Summary

Overview

The leveraged buyout (LBO) was much debated in the wake of the takeover wave of the 1980s when the phenomenon first gained momentum. Ever since, it has been blamed for much evil, while its proponents have argued in favour of its efficiency and value creation. 4. What are the sources of gains that determine the likelihood and success of leveraged buyout activity? There is a vast amount of theory discussing leveraged buyouts, most of which was written during, or in the immediate aftermath of, the 1980s’ takeover wave. Considerable emphasis is placed on the determinants of modern leveraged buyout activity

Purpose
Delimitations
Outline
LBO Characteristics
Private Equity as an Investment Asset Class
Structuring the Leveraged Buyout
The History of Leveraged Buyouts
Modern Leveraged Buyout Activity
34 Source
The Principal-Agent Conflict
Corporate Governance Mechanisms
Leveraged Buyout Value Creation and Sources of Gains
Incentive Realignment Hypotheses
The Free Cash Flow Hypothesis
Ownership Concentration Monitoring Effect
Managerial Equity Ownership
Tax Benefit Hypothesis
Stakeholder Wealth Transfer
Costs to Existing Creditors
Costs to Employees and Local Communities
Costs to Suppliers and Customers
Costs to Tax Receiving Entities
Other Determinants
Transaction Cost Criticism
Differentiating Features of Modern Leveraged Buyout Activity
Case Outline
Company Profile
Shareholder Wealth Effect
17 Aug: First WSJ article on potential sponsor bid Graph 12
NTC’s Investment Case
Theoretical Framework Explanatory Power
Concluding Remarks on Case
CONCLUSION
Private Equity Fundraising Activity
Findings
TDC Peer Group
Full Text
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