An analysis of the effect of transaction strategy on leveraged buyout returns

Subject. This article examines whether there is a dependence of the leveraged buyout returns on the transaction strategy. Objectives. Based on the refinement of leveraged buyout (LBO) strategies, the article aims to analyze their impact on the profitability of financial sponsors and identify trends in the development of leveraged buyout transactions. Methods. For the study, I used the methods of correlation analysis, comparison, the abstract-logical method, and a subject-related literature review. Results. Based on the analysis of data on public-private LBOs completed in the period from 1996 to 2018, the article determines the dependence of the leveraged buyout efficiency on the applied LBO strategy and tactics of cash flow allocation in the LBO process. The article emphasizes the importance of the company's full history of cash flows to and from the LBO sponsor not only during the transaction period, but until its actual completion, as well, to analyze the LBO returns. The article also shows the trends in the development of LBO transactions. Relevance. The results of the study can contribute to a deeper understanding of the factors affecting the level of LBO transaction profitability, and the further development of business acquisition leveraged transactions.

Influence of factors on the activity of financial and strategic buyers in leveraged buyouts

Subject. This article examines the influence of factors on the activity of financial investors and strategic buyers in leveraged buyout transactions. Objectives. The article aims to clarify the dependence of the behavior of financial investors and strategic buyers on changes in various market conditions. Methods. For the study, I used a correlation analysis, logistic regression, comparison, and the abstract-logical and monographic methods. Results. The article identifies and describes differences in the behavior of the main types of buyers of debt financing transactions. Based on an analysis of leveraged buyout transactions in the euro area between 2002 and 2020, the article assesses the dependence of the relative contribution of financial investors and strategic buyers to the overall flow of transactions on the terms of debt and equity markets. Transaction-level analysis shows that differences in the behavior of financial investors and strategic buyers are due to differences in their propensity to make transactions in different market conditions and differences in adjustments to the volume of transactions they make, but are independent of the takeover premium they pay. Relevance. The results of the study contribute to a better understanding of the behavior of each type of buyout buyer, depending on changing market conditions.

A Detailed Worked Example of a Leveraged Buyout

This chapter explores the major criticisms levelled at the private equity sector. It clarifies some misrepresentations and myths in the light of experience over the evolution of the market and the weight of systematic evidence summarized in this book. It is important to distinguish between analysis at the fund level and at the level of the underlying individual investments. The majority of studies in the finance literature are at the fund level and discuss private equity as an investment strategy. Analysis at the investment level is often done by case study, which always risks creating general conclusions from specific examples. The chapter then looks at areas which are under-researched. These areas include performance and returns; deal structures; the private equity process; new and secondary markets; and political environment.

Leveraged buyout booms and busts: can Islamic finance help prevent and mitigate such market distortions?

The industry of private equity and leveraged buyout has been, since its beginnings, subject to several chapters of bubbles and busts, the majority of whom are initiated under similar circumstances (excess of liquidity, junk debt and mimetic behavior).The Islamic finance is a financial system that complies with the rules of the Sharia Law, and which naturally allows the achievements of purposes of Sharia, such as protection of property and capital, fair wealth distribution, reduction of uncertainty and speculation, to name a few.From this perspective, this paper discusses the capacity of Islamic finance to help prevent some factors that trigger financial crises in the leveraged buyout market and to accomplish the intended purposes through this asset class.In the first part of this paper, the authors try to break down some of these common factors that trigger or catalyze the economic booms of the leverage buyout industry, and propose a framework to visualize their effects through an agent-based Simulation program. The second part of the paper describes how Islamic economic principles constitute brakes to some distortions and excesses in the market, in such a way that the probability of occurrence of a boom decreases drastically. Finally, these Islamic features are added up to the simulation to provide a comprehensive benchmark.