Santikian_FBE421_LBO_southland_post

Santikian_FBE421_LBO_southland_post - FBE 421: Financial...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: FBE 421: Financial Analysis & Valuation Leveraged Buyouts (LBOs) LBOs Overview I n a leveraged buyout, a company is acquired by a specialized investment firm using a relatively small portion of equity and a relatively large portion of outside debt financing. The leveraged buyout investment firms today refer to themselves (and are generally referred to) as private equity (PE) firms. I n a typical leveraged buyout transaction, the private equity firm buys majority control of an existing or mature firm. How is this arrangement different from venture capital LBOs Overview LBOs represent a business acquisition strategy whereby an investor group acquires all the equity of a firm and assumes its debts. The investment is predominantly financed with debt (50-80% of total capital structure) What role does the leverage play? What role does the buyout play? LBO Acquisition Strategies Bust-up strategy Once control of company is complete, assets are sold off to repay debt used to finance the acquisition Objective is to increase efficiency in operations Very popular in the 1980s Build-up strategy Objective is to create a large public company through the purchase of a platform company upon which further acquisitions are made Gained popularity in the 1990s Agenda for Lecture Review the APV method in the context of LBOs Discuss additional financing effects that the APV method can accommodate. Work through these issues in the context of a real example from the LBO of Southland (the owner of 7- Eleven). APV The APV approach can be extended to include other effects from financing. For each additional effect, we compute a separate present value (PV) and add the PV to the previous estimate. This allows us to identify and quantify each source of value and cost separately, as well as to use different discount rates for each of them. Additional Costs? Example 1: The firm faces high future borrowing costs i.e., higher than the estimated cost of debt. Example 2: The firm will raise funds in the future by selling shares at undervalued prices....
View Full Document

Page1 / 30

Santikian_FBE421_LBO_southland_post - FBE 421: Financial...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online