Mergers, Acquisitions, and Corporate Restructurings

By Patrick A. Gaughan | Go to book overview

8
TOPICS IN GOING-PRIVATE TRANSACTIONS

This chapter continues the discussion of going-private transactions by first focusing on the role of private equity firms. Private equity firms have played a major role in the takeover market during the past quarter of a century. Particularly in the mid-2000s, these firms have been able to attract large amounts of capital and have very aggressively pursued mergers and acquisitions (M&As). Their ability to raise capital has greatly increased in recent years. We will see that at times, rather than competing with each other, many private equity firms have decided to become partners in deals. This has greatly enhanced the size of transactions they can pursue.

While the junk bond market does not today play the key role it played in the fourth merger wave in the financing of hostile takeovers, it is still relevant to the understanding of the debt financing of leveraged buyouts. We will review the historical growth of the junk bond market and show how this market has changed over time in relation to the M&A business. We will also see how the leveraged loan market has taken over some of the prominence that the junk bond had in leveraged transactions.

After discussing the leveraged loan market, this chapter will conclude with a brief discussion of stapled financing. This is the use of prearranged financing with agreed-on specific terms. Such financing agreements help accelerate approval of deals as they reduce some of the uncertainty.


PRIVATE EQUITY MARKET

During the period 2003–2007 private equity firms provided a substantial part of the fuel for the M&A boom that occurred during that period. Therefore, it is an important focus of the role these firms play in the leveraged takeover market.

The private equity market is a collection of funds that have raised capital by soliciting investments from various large investors where the funds will be invested in equity positions in companies. When these investments acquire 100% of the outstanding equity of a public company, we have a going-private transaction. When the equity is acquired through the use of some of the investment capital of the private equity fund but mainly borrowed funds, we tend to call such a deal a leveraged buyout (LBO). The fact that such deals are very common investments for private equity funds has led some to call these funds LBO funds. However, these firms can certainly use more equity and less debt. The value of using more debt, however, is that the added leverage can amplify positive returns from the deal.

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Mergers, Acquisitions, and Corporate Restructurings
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Case Studies xi
  • Preface xv
  • 1 - Background 1
  • 1 - Introduction 3
  • 2 - History of Mergers 35
  • 3 - Legal Framework 74
  • 4 - Merger Strategy 125
  • 2 - Hostile Takeovers 181
  • 5 - Antitakeover Measures 183
  • 6 - Takeover Tactics 243
  • 3 - Going-Private Transactions and Leveraged Buyouts 291
  • 7 - Leveraged Buyouts 293
  • 8 - Topics in Going-Private Transactions 335
  • 9 - Employee Stock Ownership Plans 366
  • 4 - Corporate Restructuring 387
  • 10 - Corporate Restructuring 389
  • 11 - Restructuring in Bankruptcy 435
  • 12 - Corporate Governance 473
  • 13 - Joint Ventures and Strategic Alliances 523
  • 14 - Valuation 538
  • 15 - Tax Issues 607
  • Glossary 623
  • Index 631
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