Leveraged Buyouts and Private Equity - Essay Example

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Leveraged Buyouts and Private Equity

According to the research findings leveraged buyout first came into the picture as an important phenomenon in 1980s. It was predicted that these types of organizations would form the major portion of organization which will eventually become the dominant one. These types of private equity firms involved themselves in various measures like providing incentives based on managerial abilities, and introduced the concept of active governance. They relied upon the possibility of junk bond financing. A few years later the junk bond market crashed resulting in bankruptcy of several leveraged buyouts and the leveraged buyouts of public to private transactions vanished in the starting phases of 1990s. But the market of leveraged buyout was also suffering a gloomy phase as the private equity firms continued their operation by acquiring private companies. The US experienced the boom in market of leveraged buyout in the mid 2000s. The evidences supported by various researches on some selected companies reveals that private equity investors took the advantages of time factor between the debt and equity markets. The importance of leveraged buyout lies in the usage of financial leverage in order to strengthen the acquisition of the company that has been targeted. The generated cash flow from the bought out business is used to cover he debt incurred in the acquisition. The debt holders are usually expected to earn affixed return while the equity holders seem to grasp all the benefits in a successful buyout. ...Show more

Summary

This paper presents summary and current events of leveraged buyouts and private equity. Leverage buyout is a strategy through which a company acquires any other company without investing much equity of them. Instead they prefer to finance the transaction through borrowing…
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