What is lbo?
LBO or lever purchase is a place where someone buys a control interest in the company's shares using lever finance. LBO is used when the interest does not want to invest or does not have at hand, the amount of capital needed to actually buy a control share in the target company. Therefore, for the purpose of financing the purchase, they accept massive loans using the assets of the company they receive as a collateral against their debt. Then they generally liquidate the company they purchased, repaid loans and pocket profit.
Generally the amount of lever effect used in LBO is high, but not too much. The average percentage of the total purchase price of debt is generally about 60%, but in some cases it can be up to 95%. These cases tend to occur only if the expectation of profit is almost ensured when a strongly credible group of loans is a strongly credible group and when a profit to be achieved is quite high.
The first lbo was probably in 1955 when Mclean Industries borrowed $ 7 millionRů (USD) to buy Waterman Steamship Corporation for $ 49 million. After obtaining the company, $ 20 million was sold out from the assets of Waterman Steamship Corporation to return the borrowed money. Minor examples of LBO continued in the 1950s and sixties, when they began to grow somewhat. Since the beginning of LBO, the use of holding companies, which were publicly traded as a way to buy investments in other assets, a tactic that is used by the great effect by the big financies of the 1960s, including Victor Posner and Warren Buffett.
In the 1980s. This was largely provoked by buying in 1982 William Simon of Gibson Greetings for $ 80 million, of which something higher than 95% of the investment was used. Just a year later the company had an initial public offer (IPO) worth more than $ 290 million, which Simon more than 65 MiThe USD has made a profit.
During this period, the so -called company raid LBO went on the stage. This type of LBO generally used hostile takeover to buy the target society rather than negotiating the sale of its own free will. After the sale, the group would often undress their assets or divide it into its components and sold each part for profit. This was also referred to as investment in the post-ground because the buyers rushed, took a relatively healthy or somewhat grim society and carved it into pieces for immediate profit.
The largest LBO 80 years and the largest values are once modified by inflation, the takeover of RJR Sailed from KKR. After submitting the final offer of $ 109 per share, through the initial offer of $ 75 per shearson Lehmanhutton, KRKR won the wild war with an offer to get a sosco. This LBO was recorded in the seminal book about LBO and hostile takeover, barbarians at the gate .