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TESTE DEIN WISSEN

What does the word leverage means in this context?

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TESTE DEIN WISSEN

Leverage means that equity will be replaced with debt, which is cheaper and tax deductive. Leverage multiplies the possible return, but is also connected with a higher risk

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TESTE DEIN WISSEN

Management Buyout

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TESTE DEIN WISSEN

Where the buyers are managers

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Leveraged Management Buyout

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TESTE DEIN WISSEN

Buyers are managers, financed through debt

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Leverage Buyout

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TESTE DEIN WISSEN

Without Management 

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Management Buy in

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TESTE DEIN WISSEN

Pro Rata acquisition by external Managers

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TESTE DEIN WISSEN

Spin Off

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TESTE DEIN WISSEN

Seperation and restructuring of company parts to work independently. Outsourcing and sale of assets

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TESTE DEIN WISSEN

Expansion Buy out

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TESTE DEIN WISSEN

acquisition of a company 

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TESTE DEIN WISSEN

Characteristic of a Leverage Buyout

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TESTE DEIN WISSEN

The acquistion is primarly financed with debt. 

The debt is secured with the assets of the company being acquired. 

LBOs are cash purchases rather than stock purchases

The debt is borrowed based on the assets (collaterals) and the projected future cash flows

The end result is that the unit becomes a private company (Rather a unit is taken Privat than a whole company)


LBOs are cash purchases rather than stock purchases


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TESTE DEIN WISSEN

Why were many LBO originally in capital intensive industries ?

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TESTE DEIN WISSEN

Capital Intensive industries have assets which can be used as a collateral for the debt 

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TESTE DEIN WISSEN

Typical LBO process (MBO)

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TESTE DEIN WISSEN

1. Company decides to divest itself of a division 

2. Management of division decides to buy the division

3. Company and buyer conduct a financial analysis of the division 

4. Agreement is reached on a sale price greater that the liquidation value 

5. Buyers arrange financing

6. Financing arranged and finished

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When do Agency Costs arise

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TESTE DEIN WISSEN

When the management only own a small percent of the company. They could be more interested in the maximation of salaries and perks.

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What is a leveraged Buy Out

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A Transaction which is mainly financed with debt, whereby a public company goes private. 

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Q:

What does the word leverage means in this context?

A:

Leverage means that equity will be replaced with debt, which is cheaper and tax deductive. Leverage multiplies the possible return, but is also connected with a higher risk

Q:

Management Buyout

A:

Where the buyers are managers

Q:

Leveraged Management Buyout

A:

Buyers are managers, financed through debt

Q:

Leverage Buyout

A:

Without Management 

Q:

Management Buy in

A:

Pro Rata acquisition by external Managers

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Q:

Spin Off

A:

Seperation and restructuring of company parts to work independently. Outsourcing and sale of assets

Q:

Expansion Buy out

A:

acquisition of a company 

Q:

Characteristic of a Leverage Buyout

A:

The acquistion is primarly financed with debt. 

The debt is secured with the assets of the company being acquired. 

LBOs are cash purchases rather than stock purchases

The debt is borrowed based on the assets (collaterals) and the projected future cash flows

The end result is that the unit becomes a private company (Rather a unit is taken Privat than a whole company)


LBOs are cash purchases rather than stock purchases


Q:

Why were many LBO originally in capital intensive industries ?

A:

Capital Intensive industries have assets which can be used as a collateral for the debt 

Q:

Typical LBO process (MBO)

A:

1. Company decides to divest itself of a division 

2. Management of division decides to buy the division

3. Company and buyer conduct a financial analysis of the division 

4. Agreement is reached on a sale price greater that the liquidation value 

5. Buyers arrange financing

6. Financing arranged and finished

Q:

When do Agency Costs arise

A:

When the management only own a small percent of the company. They could be more interested in the maximation of salaries and perks.

Q:

What is a leveraged Buy Out

A:

A Transaction which is mainly financed with debt, whereby a public company goes private. 

M&A Lect. 8

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