Barbarians, Demons and Hagetaka: A Financial History of Leveraged Buyouts in Asia 1980-2010

Abstract

Leveraged buyout markets in Asia have grown substantially since the 1980s, and now play an important role in the market for corporate control. We examine the emergence and growth of Asian leveraged buyout markets, with a particular focus on how financial sponsors (alongside management) facilitate change in acquired companies. We first catalogue the evolution of core markets in the region (Japan, South Korea and Australia) in light of growth in leveraged buyouts markets in the United States and Europe. We then analyse the key features of leveraged buyout activity and identify two types of leveraged buyout “waves”: policy-driven leveraged buyouts, where government creates new “rules” to facilitate buyouts as an organisational restructuring solution to financial crises; and credit-driven leveraged buyouts. Finally, we examine transaction data to assess how leverage buyout firms influence corporate governance, strategic and operational changes in Asian corporations. Our findings indicate that leveraged buyouts in Asia exhibit many features in similarity to leveraged buyouts in the United States and Western Europe, and we attribute these similarities to the primacy of internationally transmitted transaction and financial technology over institutional, legal and business cultural factors. However we also identify distinctive features of Asian leveraged buyouts which deserve greater scrutiny; in particular, a propensity for financial sponsors to instigate lower management turnover, and willingness to trade-off majority equity control (the traditional leveraged buyout equity position) for minority blocking stakes.