Anatomy of a Leveraged Buyout - NYU Stern School of Business

More documents

Recommendations

Info

Control and Going Private The Good: Since the managers of the business are now the owners, they are likely to become much more aware of default risk and distress (since it is their wealth at play) and be less likely to be overly aggressive risk takers. The Bad: If things start going bad and the managers decide that they have little to lose, they will start taking not just more risks but imprudent risks. In effect, their equity positions have become options and more risk makes them more valuable. Implication: Lenders have to step in much sooner and more aggressively, if firms get into trouble. Letting managers/owners make decisions in their firms can provide a license to steal. It follows that lending should be restricted to businesses with transparent and easily understood operations. Aswath Damodaran 48
Leverage and Going Private The Good: You could make the owners of the company personally liable for the loans taken by the company. That increases your security and reduces default costs. The Bad: Their lawyers are likely to be more creative and inventive than your lawyers. Assets and cash mysteriously find nooks and crannies to hide… Implication: Hot deals, where borrowers set the terms, are unlikely to be good deals for lenders. Aswath Damodaran 49
Page 1 and 2: Anatomy of a Leveraged Buyout: Leve
Page 3 and 4: One Example: The Harman Deal Pre-de
Page 5 and 6: I. Value and Leverage Aswath Damoda
Page 7 and 8: The fundamental question: Does the
Page 9 and 10: 1. Tax Benefit: Debt: The Basic Tra
Page 11 and 12: The Miller-Modigliani Theorem In a
Page 13 and 14: Tools for assessing the effects of
Page 15 and 16: How the debt trade off manifests it
Page 17 and 18: Harman : Working out the mechanics.
Page 19 and 20: Limitations of the Cost of Capital
Page 21 and 22: Estimating the Distress Effect- Har
Page 23 and 24: c. The APV Approach to Optimal Capi
Page 25 and 26: Harman: APV at Debt Ratios Based up
Page 27 and 28: The macro environment has a relativ
Page 29 and 30: II. The Value of Control Aswath Dam
Page 31 and 32: What is the value of control? The
Page 33 and 34: Reinvestment Rate 42.00% Current Ca
Page 35 and 36: Reinvestment Rate 70.00% Current Ca
Page 37 and 38: Implications for the control premiu
Page 39 and 40: III. The Public/ Private Transition
Page 41 and 42: Perceived Risk: Private versus Publ
Page 43 and 44: Why go private? Agency issues: The
Page 45 and 46: Good candidates for going private..
Page 47: Leverage and Control The good: A f

Anatomy of a Leveraged Buyout - NYU Stern School of Business

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?