The Impact of Arrangers and Buyout Sponsors on Loan Pricing in Leverage Buyouts: A Cross Border Study of US and European Leverage Buyouts
In: Banking and Capital Markets: New International Perspectives World Scientific Press, 2010
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In: Banking and Capital Markets: New International Perspectives World Scientific Press, 2010
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In: Georgetown McDonough School of Business Research Paper No. 3371235
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Working paper
In: NBER Working Paper No. w15952
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In: Working paper series 89
Private equity has seen an impressive activity surge in Germany over the last ten years. This working paper meets the increasing thirst for information on the German buyout market with an overview of its historic development, a quantitative analysis of its performance and a future outlook. While the authors' findings show an outperformance of buyout-financed businesses with regard to sales growth on CAGR basis, profitability growth and capex expansion, significant underperformance in terms of interest coverage levels and equity funding becomes apparent. This is in contrast to studies conducted by private equity associations and consultancies, and gives some validity to the growing fear of target company collapses as a result of riskier financing at the next economic downturn. As far as activity is concerned, the authors project only a short time-out for private equity in the wake of the ongoing credit crisis. The majority of German buyouts are middle market transactions which are fairly unaffected by the crisis and continue to offer great hidden potential. Investor returns are likely to fall in the short and midterm due to higher interest rates and risk premiums but more restrictive financing, in turn, will also lower entry prices. If private equity groups can outbid strategic players at moderate levels going forward, returns should continue to be attractive. -- Private equity ; buyout ; LBO ; MBO ; financial sponsor ; leverage finance ; M&A ; merger ; acquisition ; locust debate ; credit crisis ; sup-prime ; middle market
In: Corporate governance: an international review, Band 28, Heft 5, S. 274-293
ISSN: 1467-8683
AbstractResearch Question/IssueWe investigate outside director departures prior to management buyout offers (MBOs). In these transactions, managers have both an information advantage and incentives to make a lowball offer to shareholders. Outside directors can safeguard against managerial self‐dealing by negotiating for the best terms for public shareholders from either management or another bidder.Research Findings/InsightsIt is typical that outside directors stay on the board through an MBO offer as MBOs are less likely to have changes in directors—either joining or leaving—relative to a control sample. After controlling for endogeneity as well as firm and director characteristics, we find that outside directors are more likely to leave when the offer is later contested. We do not find any evidence that departing directors are replaced by new outside directors who ensure shareholders get a higher premium nor do we find any evidence that the board acts as a public auctioneer. We also find that outside directors are more likely to depart when the buyout contest is longer. Our findings show that outside directors provide a weak internal monitoring mechanism as they leave precisely when shareholders need their expertise the most.Theoretical/Academic ImplicationsOur results contribute to research that supports the notion that outside director departures are symptomatic of board weakness. The results of our study support the contention of other researchers that outside directors often fail to monitor managers.Practitioner/Policy ImplicationsOur study offers useful information to M&A investment banking advisors and leverage buyout analysts by showing the mechanisms under which director turnover can affect the value and the outcome of MBOs.
In: New politics: a journal of socialist thought, Band 12, Heft 3, S. 88-89
ISSN: 0028-6494
A response to "Global Leverage Buyout" or the "Longest Boom in Capitalist History" by Laren Goldner. Adapted from the source document.
In: NBER working paper series 14148
"This paper measures the risk-adjusted performance of US buyouts. It draws on a unique and proprietary set of data on 133 US buyouts between 1984 and 2004. For each of them we determine a public market equivalent that matches it with respect to its timing and its systematic risk. After a correction for selection bias in our data, the regression of the buyout internal rates of return on the internal rates of return of the mimicking portfolio yields a positive and statistically significant alpha. Our sensitivity analyses highlight the necessity of a comprehensive risk-adjustment that considers both operating risk and leverage risk for an accurate assessment of buyout performance. This finding is particularly important as existing literature on that topic tends to rely on performance measures without a proper risk-adjustment"--National Bureau of Economic Research web site
Unter dem Begriff Leveraged Buyoutversteht man gemeinhin den Kauf eines Unternehmens, bzw. eines Unternehmensteils, durch große Private Equity Gesellschaften auf Zeit, der zu einem wesentlichen Teil durch Fremdkapital finanziert wird. Gegen Ende der siebziger Jahre des vergangenen Jahrhunderts begannen Finanzinvestoren in den USA erstmals, Unternehmensübernahmen mittels Leveraged Buyouts (LBOs) durchzuführen. Im Verlauf der Zeit haben sich LBOs auch in Deutschland und Europa zu einem zentralen Geschäftsbereich der Private Equity Branche entwickelt. Daraus werden die Aktualität und die Notwendigkeit einer intensiven Auseinandersetzung mit dieser Thematik ersichtlich. In diesem Buch werden die zentralen Charakteristika dieser innovativen Form der Akquisitionsfinanzierung detailliert betrachtet und dienen dem Leser, ein besseres Verständnis für die Gründe des Erfolgs von LBOs zu entwickeln. Ausgehend von einer theoretischen Analyse der Wertsteigerungshebel, wie der Erklärung des namensgebenden Leverage Effekts, wird der typische Verlauf eines LBOs hinsichtlich der Strukturierung und der Finanzierung aufgezeigt. Des Weiteren werden empirische Ergebnisse zahlreicher Studien bezüglich der üblicherweise seitens der Investoren getroffenen Maßnahmen, deren Folgen für die übernommenen Unternehmen und deren Mitarbeiter analysiert und die gewählten Exitkanäle beschrieben. Auch werden die Auswirkungen der im Jahr 2007 einsetzenden weltweiten Bankenkrise auf die Private Equity Branche und insbesondere LBOs untersucht. Bei dieser kritischen Auseinandersetzung zeigt sich, dass insbesondere in schwierigen, bzw. nicht vorhergesehenen wirtschaftlichen Situationen zahlreiche Probleme für die Portfoliounternehmen entstehen können.
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In: Recherches Internationales, Band 29, Heft 1, S. 51-86
Frédéric F. Clairmonte : The machinery of financial capitalism.
In the processes of accumulation of capital, the multinational firms play a considerable part. The author studies the financial machineries they use mainly the leverage buyout — and shows that the speculation deriving from them generates destructive processes in the economy. He calls to the development of their democratic control, which requires long and hard political fights.
The billionaire borrowers: private equity and leverage buyouts -- From "gaga" to google : the shepherds of business from infancy to infamous : venture capital and entrepreneurship -- The billion dollar brokers of investment banking -- The million dollar analysis of management consulting -- Market mavericks and stock market wizards : the secretive world of hedge funds -- Leading the big guys that make the economy move : the management of fortune 500 companies
In: Review of financial economics: RFE, Band 20, Heft 4, S. 146-161
ISSN: 1873-5924
AbstractUsing a unique proprietary data set of 1980 realized and unrealized buyouts completed between 1986 and 2010, we examine entry and exit pricing in buyouts and its influence on private equity (PE) sponsors' returns. We find that besides leverage and operational improvements, EBITDA multiple expansion (i.e. the difference between entry and exit pricing) is a fundamental factor in explaining equity returns and the result of skill rather than pure luck. We also provide evidence that more experienced PE sponsors use more debt to finance a PE transaction and debt is positively related to entry buyout pricing. However, for a transaction with a given leverage level, more experienced PE sponsors are able to negotiate lower prices. In addition, our results show that deals conducted by first time funds which are realized in a later stage of a fund's life cycle are associated with lower exit prices which can be explained by the increased exit pressure for the PE sponsor.
The private equity industry is at a cross-roads. In the easy money years between 2004 and 2008, it was awash with investment, debt was easily obtained and some rash, over-leveraged deals were done by the so-called 'mega buyout' funds. Today, fund managers are dealing with the legacy of that era, while also figuring out how best to secure new investment and make attractive returns in the age of deleveraging. Many firms are succeeding, sometimes spectacularly, in both developed and emerging markets. Some have developed innovative new business models, while others have reinvented the old. This book contains exclusive interviews with the leaders of many of the world's most successful and innovative funds. These include: Steve Klinsky and Ajit Nedungadi of US growth investors New Mountain Capital and TA Associates; Jon Moulton and Wol Kolade of the British turnaround and growth specialists Better Capital and ISIS Equity Partners; Niten Malhan of Warburg Pincus' Indian operation; Derek Sulger, an Anglo-American who transitioned from setting up telecoms businesses in the country to founding Lunar Capital, which backs Indigenous entrepreneurs; pan-emerging market specialist Actis and innovative investors in Africa and the Middle East such as Citadel Capital's Hisham El-Khazindar and Abraaj's Mustafa Abdel-Wadood. These in-depth interviews tease out issues such as how private equity managers can best create enterprise value and out-perform public markets without returning to pre-crisis levels of leverage, techniques for differentiating a firm's capital, the sustainability of private equity in emerging markets, the role of the industry in low-income countries and alternatives to the established limited partnership governance model. The Future of Private Equity: Beyond the Mega Buyout is essential reading for anyone working in or with the private equity industry, anywhere in the world.