Leveraged Buyouts Research Articles

차입매수(LBO)의 공정성과 이사의 책임

LBO에 관한 법적 규제는 법적으로 허용되는 LBO와 그렇지 않은 LBO를 구별할 수 있는 기준을 마련하는 것이 급선무이다. 즉 투기적이고 탐욕적인 LBO는 규제해야 되지만 창의적이고 도전적인 LBO는 최대한 허용해야 하는 것이 경제계의 오래된 요청이다. LBO는 본질적으로 고도의 위험을 수반하는 거래이기 때문에 이를 규율하는 법률적 환경이 명확하고 안정적이어야 LBO가 활성화될 수 있다. LBO는 대상회사에 대한 인수자금을 그 회사의 자산 등을 담보로 제공하는 형태로서 인수와 합병, 구조조정과 같은 과정을 거치게 되므로 당사자 간의 이해충돌과 법적 갈등이 생기는 것은 거의 필연적인 수순이다. 당사자 간의 이익충돌은 인수인과 대상회사 또는 인수인과 대상회사의 소수주주 및 채권자 사이에 생기는데, 이들의 이해관계를 조절함과 아울러 LBO로 인하여 피해를 입는 자의 이익을 보호하는 것이 LBO의 핵심적인 내용이다.

Risk and performance of bonds sponsored by private equity firms

Abstract The bond market is an important source of financing for Private Equity (PE) sponsored transactions. Using the methodology suggested by Bessembinder et al. (2009), we find that PE-sponsored bonds underperform comparable benchmarks. This is especially true for bonds with credit ratings below investment grade and those issued in hot bond markets. Furthermore, bonds sponsored by more experienced PE groups (PEGs) underperform bonds associated with less experienced PE groups, while bonds backed by investment bank-affiliated PEGs underperform bonds sponsored by other PEGs. These findings highlight the risk and return relationship in the high-yield bond market related to leveraged buyouts (LBOs) and PEGs.

Private Equity Impact on Corporate Innovation

This paper focuses on the influence of Private Equity (PE) firms on corporate innovation with the purpose of identifying opportunities such as new or enhanced strategies that PE firms would use to in order to increase the success rate of their acquisitions. The paper starts with a comprehensive literature review and creates a strong theoretical foundation about PE Leveraged Buyout (LBO) companies and their impact on corporate innovation. The methods used in this paper are the case study research, which is introduced to create theory [1] and the review-centric research approach of reviewing existing theory and research as well as for creating a new model of variables and relationships [2] that can be used to validate new hypotheses. The paper introduces a new model that is based on data collection from the review of existing theory and research. The model is a collection of variables that are categorized and linked together to depict new relationships that show the PE LBOs’ influence on corporate innovation. The research also identifies inconsistency in the existing research literature as an opportunity for future research. The research is limited by the duration of a semester which is the timeframe allotted to complete the research work. Develop understanding of the reasons some LBOs fail and strategies that will help PE firms increase the success rate of their investments and create a win-win scenario for investors, employees, and the entire value chain. This paper new concepts and ideas are completely derived from the theoretical foundation and the professional experience of the author.

차입매수를 통한 인수합병전략: 약진통상 사례

차입매수를 통한 인수합병전략: 약진통상 사례

Private Equity, Jobs, and Productivity: Reply to Ayash and Rastad

Ayash and Rastad (2017) express several concerns about our 2014 analysis of private equity buyouts. We welcome their interest in our work but think their criticisms are off the mark. Some of their claims reflect a misunderstanding of the Census Bureau’s Longitudinal Business Database (LBD) and its underlying data inputs. Because the LBD has emerged as a major laboratory for empirical studies in economics and finance, we use this opportunity to reiterate and clarify some of its important features. In a similar spirit, we elaborate on steps taken to develop our large sample of private equity buyouts. We also address Ayash and Rastad’s remarks about the empirical design of our establishment-level analysis, our methods for distinguishing between leveraged buyouts (LBOs) and other private equity transactions, bankruptcy rates among firms acquired in LBOs, their assertion that we undercount large public-to-private LBOs, and other matters.

Valuing Late-Stage Companies and Leveraged Buyouts

This note replaces Valuation of Late-Stage Companies and (UVA-F-1639).This note focuses on the valuation of late-stage companies with a particular emphasis on leveraged buyouts (LBOs). In contrast to venture capital, where firms are typically at an early stage of development, late-stage investments involve more-established businesses that have an ability to take on higher levels of debt to augment investor returns. The note provides a description of LBOs, an overview of the commonly used sources of financing and the metrics used to assess LBO capital structures, a discussion of the value drivers of buyouts, and a step-by-step example of an LBO analysis. This note takes the perspective of private equity (PE) investors and assumes some basic familiarity with the structure of PE investing. Their approach is compared to other discounted cash flow valuation methods based on the weighted-average cost of capital or adjusted present value. Excerpt UVA-F-1846 Aug. 23, 2018 Valuing Late-Stage Companies and Leveraged Buyouts This note focuses on the valuation of late-stage companies with a particular emphasis on leveraged buyouts (LBOs). Late-stage investments can arise in situations involving growth equity, turnarounds, mezzanine investments, and distressed debt. In contrast to venture capital, where firms are typically at an early stage of development, late-stage investments involve more-established businesses that have an ability to take on higher levels of leverage to augment investor returns. This note takes the perspective of a private equity (PE) investor and assumes some basic familiarity with the structure of PE investing. It provides a basic overview of the primary sources of financing, the metrics used to gauge LBO capital structures, and a step-by-step example of an LBO analysis. What is an LBO? An LBO is the purchase of a firm by an outside individual, another firm, or the incumbent management using large amounts of debt to finance the purchase. The target firm for an LBO can be a freestanding private or public company or a division of a company. Most often, LBOs are undertaken by PE firms that specialize in these transactions (e.g., Blackstone, Carlyle Group, and KKR). PE firms that specialize in LBOs are often referred to as sponsors, because they in effect sponsor or propose the deal. Unlike strategic buyers, who often have assets or expertise to combine with the target firm, sponsors are typically financial buyers whose expertise lies in arranging the financing and incentives for management to perform in a highly leveraged transaction (HLT). That said, sponsors must also have a keen eye to identify opportunities for business development and operating improvements. . . .

Is Job Insecurity Higher in Leveraged Buyouts?

This article assesses whether job insecurity is higher in leveraged buyouts (LBOs) than elsewhere. It draws on matched employer‐employee data from the British 2011 Workplace Employment Relations Study linked to data from the Centre for Management Buyout Research. The analysis finds no consistent evidence of higher job insecurity in LBOs as measured by workforce reduction practices (redundancy rates, job security/no‐compulsory redundancies policies and redundancy consultation), dismissal rates, labour use practices (non‐permanent employment contracts and outsourcing) and employees’ job security perceptions. Job insecurity is no higher in either current or former LBOs than elsewhere. Contrary to what might be expected, it is also no higher in private equity (PE)‐backed LBOs, management buy‐ins or high‐debt LBOs and there is only partial and weak evidence of higher job insecurity in short‐hold LBOs. Job insecurity is also no higher in perfect storm LBOs (PE‐backed management buy‐ins that are short‐holds with high‐debt). Concerns over the negative implications of LBOs for job security thus appear misplaced.

The Origin, Ownership and Use of Cash Flows in Leveraged Buyouts

This paper uses cash flow statements to study leveraged buyouts between 1980 and 2006 of large publicly traded U.S. firms by private equity funds. Presenting the origin, ownership and use of cash in these transactions, I show that once they are controlled by private equity funds, these firms exhibit a significant decline in investment and growth. I also use cash flow statements to evaluate the free cash flow proxies frequently used in the literature and show that the gains in free cash flows are due to significant reduction in investment post-LBO and not operating improvements. These reductions are strongly correlated with declining future growth rates. Finally, I offer an alternative explanation for why firms acquired in leveraged buyouts in the U.S. experience a period of contraction, while those completed in France experience growth: a case of mistaken identity.

How Alternative are Private Markets?

We estimate a parsimonious set of factor portfolios out of a comprehensive panel of private market funds. We test whether these private market factors are spanned by commonly used public equity factors, and whether they are priced in the cross-section of private market funds. Four main private market factors explain returns in the cross-section; one of them, dominated by large leveraged buyout funds, generated a signi cant positive premium. Together with the second factor dominated by venture capital funds, it improved an investor Sharpe ratio over the past thirty years. The benefits of investing in factors related to real assets and private debt funds have been smaller but increasing over time.

Pravno uređenje kupnje dionica ciljnog društva zaduživanjem (LBO transakcije)

U radu se obrađuju transakcije kod kojih se stjecanje dionica financira zaduživanjem ciljnog društva (LBO transakcije), ukazujući na otvorena pitanja u njihovoj primjeni. Autori se posebno osvrću na primjenu propisa o povezanim društvima te na provođenje statusne promjene pripajanja kod LBO transakcija. Budući da je praksa pokazala da se LBO transakcije često koriste u postupcima preuzimanja, autori u zasebnom poglavlju obrađuju korištenje ovih transkacija u tim postupcima. U radu se analizira europski regulatorni okvir uređenja LBO transakcija te se iznose i uspoređuju rješenja hrvatskoga, slovenskog i talijanskog prava. Uspoređujući rješenja istraženih pravnih poredaka uočeno je da su sva tri istražena pravna poretka različito uredila ove transakcije. Dok su Hrvatska i Italija uredile LBO transakcije na način kako ih uređuje Druga direktiva u pravu društava, slovenski je zakonodavac znatno pooštrio uvjete za korištenje ovih transakcija, odnosno de facto onemogućio njihovo korištenje. Temeljem rezultata provedenoga istraživanja, autori zaključno daju prijedloge rješenja de lege ferenda.

Análise da criação de valor em uma operação de leveraged buyout (LBO) No Brasil

Fazendo uso de um modelo de negócio baseado na aquisição de empresas com potencial de crescimento, os private equities desenvolveram as leveraged buyouts (LBOs). Para a aquisição da empresa-alvo, utiliza-se a dívida como pagamento de parte significativa do valor da aquisição. Um dos principais objetivos das LBOs é possibilitar que entidades financeiras realizem um volume considerável de aquisições sem comprometer substancialmente o patrimônio e o capital próprio, mitigando o risco do investimento e maximizando o retorno. Este artigo visa analisar a criação de valor em uma operação de LBO no mercado brasileiro, através do uso do Economic Value Added (EVA®). O método de pesquisa empregado foi o ex post facto, baseado em uma pesquisa qualitativa. O resultado encontrado indica evidências inconclusivas quanto a destruição do valor em uma operação de LBO nacional, considerando outros possíveis elementos responsáveis pelo indicador EVA® negativo.

Do Bank Networks Influence LBO Financing?

We investigate whether syndication networks among banks influence the financing of leveraged buyouts (LBO). We find that lead banks serve as important intermediaries between the supply (banks in an LBO loan syndicate) and demand (targets and private equity (PE) firms) sides of LBO financing. They rely on their syndication network to reduce information asymmetries between the parties involved, especially when prior bank-borrower relationships are weak or non-existent. Banks that are more central within their network are more likely to be chosen as lead arrangers since they are able to form larger syndicates and provide more debt. In addition, more central banks are preferred as lead arrangers because their influential network position allows them to finance LBOs under terms that are favorable to both targets and PE firms. After controlling for the simultaneous determination of LBO financing terms, we find that a one-standard-deviation increase in bank centrality reduces LBO loan spreads by an average of 22 basis points, representing a 1.65% increase in PE equity returns for an average loan size of $363 million. These findings suggest that bank networks play a crucial role in facilitating LBO financing and that borrowers are able to perceive the relative position of banks within these syndication networks.

The Determinants of Buyout Returns: Does Transaction Strategy Matter?

This paper reexamines one of the most studied questions in the scholarship of leveraged buyouts (LBOs): how do LBO sponsors create value for their investors in take-private acquisitions? In so doing, the paper makes two significant contributions to our understanding of LBOs. Most importantly, the paper provides the first-ever analysis of the equity returns to LBO sponsors. Due to data limitations, prior studies have traditionally relied on total returns to an LBO (that is, returns to both debt and equity investors) to analyze the source of LBO value creation. Drawing on a unique database of LBO transactions, this paper examines instead the actual internal rates of return (IRRs) realized by LBO sponsors on a deal-by-deal basis, thereby permitting a direct analysis of how LBO sponsors create value for their investors in leveraged buyouts. Second, the paper demonstrates how the traditional approach to examining the determinants of LBO returns overlooks a number of important LBO transaction strategies that are used to enhance a sponsor’s equity returns. In particular, the paper demonstrates that a significant component of LBO sponsor returns stems not from operating performance changes but from timing tactics that LBO sponsors use to accelerate the liquidation of their investments and thereby increase their IRRs. Among other things, this latter finding helps explain the gradual bias of private equity firms away from IPOs as an exit strategy for their portfolio investments and towards cash acquisitions.

Valuation of Late-Stage Companies and Buyouts

This note focuses on the valuation of late-stage companies with a particular emphasis on leveraged buyouts (LBOs). In addition to LBOs, late-stage investments can arise in situations involving growth equity, turnarounds, mezzanine investments, and distressed debt. In contrast to venture capital, where firms are typically at an early stage of development, late-stage investments involve more established businesses that have an ability to take on higher levels of leverage to augment investor returns. While in practice there are several approaches to valuation, the approach chosen often comes down to which provides the most accurate representation of the situation and perspectives of the parties involved. This note takes the perspective of a PE investor and assumes some basic familiarity with the structure of PE investing. It provides a basic overview of the primary sources of financing and the metrics used to gauge LBO capital structures and a step-by-step example of an LBO analysis. Excerpt UVA-F-1639 Rev. Aug. 7, 2013 VALUATION OF LATE-STAGE COMPANIES AND BUYOUTS Private equity involves a wide range of investment opportunities from venture capital to buyouts. The methods of valuation used to analyze private equity (PE) investments depend on the maturity of the company and the extent of financial information available to forecast company, industry, and macro trends. This note focuses on the valuation of late-stage companies with a particular emphasis on leveraged buyouts (LBOs). In addition to LBOs, late-stage investments can arise in situations involving growth equity, turnarounds, mezzanine investments, and distressed debt. In contrast to venture capital, where firms are typically at an early stage of development, late-stage investments involve more established businesses that have an ability to take on higher levels of leverage to augment investor returns. While in practice there are multiple approaches to valuation, the approach chosen often comes down to which provides the most accurate representation of the situation and perspectives of the parties involved. This note takes the perspective of a PE investor and assumes some basic familiarity with the structure of PE investing. It provides a basic overview of the primary sources of financing and the metrics used to gauge LBO capital structures and a step-by-step example of an LBO analysis. What is a Leveraged Buyout? A leveraged buyout is simply the purchase of a firm by an outside individual, another firm, or the incumbent management using large amounts of debt to finance the purchase. Most often, LBOs are undertaken by private equity firms that specialize in these transactions (e.g., Blackstone, Carlyle Group, and KKR). PE firms that specialize in LBOs are often referred to as sponsors, because they in effect sponsor or propose the deal. Unlike strategic buyers, who often have assets or expertise to combine with the target firm, sponsors are typically financial buyers whose expertise lies in arranging the financing and incentives for management to perform in a highly leveraged transaction (HLT). That said, sponsors must also have a keen eye to identify opportunities for operating improvements. . . .

Staples LBO: Meet You on the Mezzanine

In this case, two friends, a managing director with an investment banking group and a partner at Cavalier Capital LLC have submitted a bit for a leveraged buyout (LBO) of retail giant Staples Inc. Staples seemed like an ideal LBO candidate: it was a large, stable company; it was a market leader with highly predictable cash flows; and, most important, its shareholders were unhappy. Markets also looked friendly for a new wave of LBOs: valuations were down, and banks were once again flush with cash and ready to lend.The two friends know they need to sweeten their 6.12× EBITDA bid, invest more in due diligence, and talk to management and the board of directors. They also know from experience that competition would inevitably draw bids in a relatively narrow range. They are considering expanding the debt profile through the judicious use of mezzanine financing. Prior to the global economic downturn, mezzanine had all but disappeared from view. Now that banks had grown more conservative in the amount of debt they were willing to provide, mezzanine financing was once again a crucial ingredient in ensuring a winning bid. There were many different combinations of debt packages that could be used to finance the LBO. Both friends had to make sure that the financing structure and the final bid were best suited not only for equity and mezzanine investors, but also for Staples. Excerpt UVA-F-1721 Aug. 23, 2017 Staples LBO: Meet You on the Mezzanine “I met with Phelps briefly this morning, and the news is good,” reported Lyle Cunningham, a managing director with Jefferson Capital's investment banking group, to Bob Palmer, a partner at Cavalier Capital LLC and an old friend from business school, with whom he was having lunch. Cunningham was referring to Miles Phelps, the iconic New York investment banker. It was January 2013; a month earlier, Phelps had announced the sale of Staples Inc., the Boston-based retail giant, and had begun soliciting leveraged buyout (LBO) bids on its behalf. Cunningham and Palmer had submitted one such bid. “We've made it past the first round. Now it's time to actually talk to some folks up in Boston, refine our estimates, and increase the odds in our favor,” Cunningham said, obviously excited. Palmer smiled wryly. “Careful what you wish for,” he replied. “There's no Easy Button here.” Everything about this deal looked exceptionally attractive. Staples seemed like an ideal LBO candidate: it was a large, stable company; it was a market leader with highly predictable cash flows; and, most important, its shareholders were unhappy. Markets also looked friendly for a new wave of LBOs: valuations were down, and banks were once again flush with cash and ready to lend. Staples was ripe for an LBO, so it did not surprise too many people on Wall Street when Phelps announced an auction. . . .

REVERSE LEVERAGED BUYOUT RETURN BEHAVIOR: SOME EUROPEAN EVIDENCE

This study investigates the stock performance of reverse leveraged buyouts (RLBOs) before, during, and after the global financial crisis. An RLBO consists of the return to public investors (i.e. the offering of stocks to the public) of a company that had gone private after a leveraged buyout (LBO) led by a private equity fund. The value created by an RLBO resides in the changes brought by the LBO fund while it owns the company. After a “repackaging” of the bought company, the private equity fund sells the company’s shares to the public. Most of the research on this topic, based on RLBOs that occurred between 1980 and 2005 in the US, has shown that RLBOs outperform their peers (i.e. other IPOs) and outperform the market after going public again. Focusing on RLBO companies in Europe in the financial crisis era, this study investigates whether they also outperform other IPOs and the market. The study is based on a sample of 421 IPOs occurring between 2001 and 2011 in France, Germany and the UK, of which 52 are RLBOs. We examine RLBO performance one day, one month, one year and three years after the offering. We also use event study methods to investigate the impact of the global financial crisis on RLBO performance. We find that European RLBOs outperform both their peers (i.e. “classic” IPOs) and the market during the period studied. This outperformance does not diminish in the long-term. The global financial crisis appears to have affected RLBO performance, which weakened between 2007 and 2009, though RLBOs still outperformed the market. In addition, multivariable regressions were used to examine various extant explanations for RLBO outperformance. This analysis did not support any of the prevailing theories. In particular, the value created by RLBOs does not appear to be linked to LBO duration, sponsor reputation, or to the level of leverage employed. There is no evidence of time or industry effects. Moreover, RLBO performance shows no correlation with market capitalization. The explanation of why RLBOs outperform both other IPOs and the market continues to be a puzzle. Further theoretical elaboration is required.

"Hat in Hand": Financing the Leveraged Buyout of Clear Channel Communications

In this case, John Connaughton, a managing director at Bain Capital, had joined forces in October 2006 with Thomas H. Lee Partners (THL) to acquire Clear Channel Communications in a historic $28 billion leveraged buyout (LBO). The plan had looked solid, and the private equity consortium was ready to close the deal. But this plan turned out to be only the first act.In late 2007 and early 2008, the banking group approached Connaughton more than once, asking to renegotiate the deal, characterizing its request as coming “hat in hand.” Then the banking group outright refused to fund the deal until new terms were met. Connaughton had invested a significant amount of his time and his company's resources to bring this deal to the table, so he was not inclined to concede to the new demands without a fight...but he also knew that a failed deal would have tremendous consequences for his company and for THL. What should he do? Excerpt UVA-F-1755 Aug. 31, 2017 “Hat in Hand”: Financing the Leveraged Buyout of Clear Channel Communications Large, complex transactions always seemed a bit operatic, and John Connaughton knew this one wasn't an exception. Two years had passed since Connaughton, a managing director at Bain Capital, had joined forces with Thomas H. Lee Partners (THL) to acquire Clear Channel Communications (Clear Channel) in a historic $ 28 billion leveraged buyout (LBO). Seven months before the effort had begun in October 2006, Thomas Lee, a respected pioneer in LBOs, had exercised a long-term plan to leave his eponymous Boston firm for New York. Connaughton had thought the irony of THL retaining Lee's name without his presence would be the most dramatic part about the deal. A few months back, the plan had looked solid, and the private equity (PE) consortium was ready to close the deal. But this plan turned out to be only the first act. Now, in early 2008, the second act was unraveling; Connaughton had to handle it, and quickly. The bank group contractually obliged to finance the Clear Channel deal was seeking—pleading, if bankers could be said to plead—to renegotiate terms for the $ 22 billion debt financing in play. Reneging on a binding contract—what sort of plot twist was this? Was the subprime mortgage crisis endangering this deal? Did the banks see Connaughton as ripe for manipulation, or were they coming to him for help? Connaughton's colleagues advocated taking the banks to court. Was that the right path? Could they restructure the deal? What expectations were realistic? At the end of the day, what should he recommend to the consortium? . . .

Innovation in Private Equity Leveraged Buyouts

Innovation in Private Equity Leveraged Buyouts

How Banks Price Loans in Leveraged Buy-Outs: An Empirical Analysis of Spread Determinants

This paper examines which factors determine the pricing of loans in LBOs, using a worldwide sample of 12,673 syndicated loans closed during the 2000-2013 period. We find that spreads and pricing processes differ significantly in market-based versus bank-based financial systems, as well as in the U.S. vis-a-vis W.E. In the pre-crisis period, borrowers in market-based financial systems face higher spreads (33.59 bps) than those in bank-based financial systems and loans closed in common law countries are associated with higher spreads (50.71 bps) than those closed in civil law countries. During the crisis period only loans in common law legal systems are associated with higher spreads. In line with Carey and Nini’s (2007) findings, we show that U.S. borrowers face higher spreads than W.E. borrowers. We also find that the pricing of loans in LBOs depends mainly on marketability and default factors and that acquired firms with a higher cash flow potential and asset tangibility face lower spreads. Finally, a robust convex relationship between spread and maturity is found for loans in LBOs.

Does Culture Affect Operating Performance in Private Equity Buyouts?

Using a dataset of 583 private equity (PE) leveraged buyouts (LBOs) from 14 European countries, we examine the moderating impact of national culture on the operating performance of PE portfolio companies. We argue that high performance orientation of a society positively affects operating performance development because it aligns incentives with PE sponsors who need to satisfy high return expectations in a short period of time. In our baseline estimates, we find that PE-backed firms outgrow their respective industries significantly in terms of total assets and employment post-LBO. A country’s performance orientation reinforces this effect: A one standard deviation increase in countries’ performance orientation is associated with an industry-adjusted rise of about 11% in total assets and more than 6% in employment over the course of four years, respectively. Independent of a country’s performance orientation, PE-backing does not meaningfully impact post-LBO profitability, which suggests a growth profitability tradeoff. We also test whether growth comes at the expense of higher leverage and thus higher risk, but cannot find a significantly higher debt burden in performance oriented societies. Thus, our findings indicate that portfolio firms in performance oriented societies grow faster but at similar risk as their peers in non-performance oriented societies.