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Leveraged buyouts in our research

Author: ZhengTao From: www.yourpaper.net Posted: 2009-07-19 23:29:47 Read:
Abstract: leveraged buyouts (Leveraged Buy-Outs) as a special form of mergers and acquisitions by the company, started in the United States in the mid-1960s, and reached its peak in the 1980s. Characterized by the acquisition of capital market financing comes mainly from the purpose of the acquisition of higher prices to sell the company or its stock. Therefore, leveraged buyouts compared to the traditional sense, the Company acquired a big difference. The growing number of incidents of mergers and acquisitions in China, this special way of international M & A financing - of LBO's development history, operational procedures, characteristics and key to success, and the Chinese enterprises LBO. Keywords: leveraged buyouts; low credit rating bonds; management buyouts

1 LBO course of development

LBO model pioneered by Kohlberg. Back in the mid-1960s, he noticed a number of successful family business owners because the eldest high, willing to sell the corporate stock, but hope reasonable tax avoidance and the right to retain family control. Then do this only two ways: (1) the stock exchange; (2) the sale of the business to a large company. But the founder of the family business are often reluctant to market, do not want their hard-founded enterprises to thousands of investors are not interested in the company's long-term business of their own do not know the external enterprises do not want to be sold to large companies. Kohlberg designed the leveraged buyouts mode, that is, the sale of majority stake in the family business to the investment group consisting of an equity investor, the family still held by the company part of the shares of the investment community agree that the family continues to operate the company. The investment group funded acquisition debt, leveraged loans, a higher proportion of corporate debt, we must strive to improve business cash flow in order to repay the debt.
In the 1970s, more and more diversified business enterprise group seeking to sell the enterprise subordinate poor performance. These profitable enterprises entering the Enterprise Group, and sector operators believe their companies can still return to profitability from the Enterprise Group. Kohlberg designed corporate management to participate in the leveraged acquisition mode (MBO): absorb the experienced management personnel of the acquired company to participate in LBO that assigned to the important decisive role of the business and the value of key management personnel There are attractive Shares. The late 1970s, all commercial banks to traditional corporate lending business is deteriorating, and many non-financial companies in direct financing from the financial markets, and consumer loans by the strong competition in the financial companies. KKR (founded by Jerry Kohlberg, Henry Clay Wei and George Roberts Professional the LBO Enterprise) dynamic commercial banks to provide capital and subordinated debt in the LBO transaction in LBO equity investment.
Before the 1980s, LBO mainly in non-listed companies and small and medium-sized listed companies. Since the 1980s, economic and legislative environment changes, LBO the new goals and strategies. American enterprises are facing fierce competition of foreign companies in Germany, Japan, and other low-cost, and the urgent need to restructure. In order to be able to asset size, the stock market value of the giant diversified listed company launched a hostile leveraged buyout to gain higher returns, KKR, led by the LBO transaction in terms of debt and equity financing strategy and technology innovation line. Launch junk bond finance nuclear weapons in the area of ??debt capital, just the well-known high-yield bond trading overlord of Drexel Burnham Lambert investment bank Milkon opened up a huge source of subordinated debt. LBO / MBO transaction size increasing, LBO development from KKR70's friendly behavior to the mid-1980s after the acquisitions of the massive leverage hostile listed by the giant.
The early 1990s, LBO market Boom decline sharply shrinking into silence. But by the mid-1990s, the U.S. economy continued to grow high-yield bond market re-active, LBO transaction also will return. Traditional industries continue to be the LBO favor. However, compared to the 1980s, LBO transaction characteristics and structure occur significant changes in: (1) transaction price changes. The equity ratio of the initial capital structure from the late 1980s to 10% to 30% to 20. The number of shareholders in LBO transactions less the promoters equity investment increases, instead of part of the bank loans. (2) EBITDA / interest expense by the late 1980s, this ratio usually less than 1 rose to more than 1, other financial ratios return to normal levels. (3) The technology industry has gradually become a hotspot of LBO activity.

2 Chinese enterprises leveraged buyout financing financial system constraints

2.1 the balanced development of the internal structure of the capital market
The important role of the capital market highlights in it is the place of the enterprise to obtain long-term financing in leveraged buyouts, and provides a great convenience for the flow and transfer of stocks, bonds, and property rights, and greatly reduces the cost of mergers and acquisitions. From the structure of the financing of leveraged buy-outs, and its success is heavily dependent on mature capital market. China's capital market, the long-standing "strong stock market, a weak bond market, a strong national debt, weak corporate debt" structural imbalance characteristics. On the one hand, the stock market and bond market development is uneven. On the other hand, the share of corporate bonds in the bond market size has been small. Imbalance in the internal structure of the capital markets, the development of the capital market is not well play a role in optimizing resource allocation, can not solve the mergers and acquisitions financing problem. 2.2 commercial banks can not be leveraged acquisition for enterprises to provide substantial financing
From the high leverage of the LBO, LBO smooth and ultimate success lies in whether to obtain the necessary funds on the financial markets, leveraged buyout financing structure holds the largest proportion (approximately 50% to 60% ) of senior debt financing has become a very important part. But in fact, the commercial banks to provide mortgage loans faces enormous risks. These risks include: mortgage asset quality, liquidity of the cash and assets of the secured party, subsidiary or part of the assets of the company after the sale would not affect the normal operation of the company's factors. For China's commercial banks, on the one hand, the limited risk control ability, on the other hand, China's banks are subject to strict control on the size and use of the funds the operation and management and capital for the enterprise, and therefore can not provide substantial financing leveraged buyouts.
3 responses: the introduction of alternative forms LBO
The leveraged buyout has been proven to be an effective way of financing the acquisition. Despite the current operating capacity of Chinese enterprises and their quality, far less than the United States and Europe, but that just means that we can not copy the developed countries of the LBO mode. Therefore, the authors believe that the leveraged buyout of the transition period can exist in the form of Chinese characteristics, and later gradually and international mergers and acquisitions. In fact, China's enterprises for leveraged buyouts has an initial attempt. In March 1997, the Haier Group acquisitions washing machine factory in Guangdong Ed Electric Group, is to use this way. Practice: first washing machine factory the original debt peel, borne by Amity Group, then reorganization of the washing machine factory in Shunde Haier Electrical Appliances Co., Ltd.. Haier holds a 60% stake in the company, the implementation of the holding. Haier Group Holdings 29.28 million yuan of funds, the Haier Group did not immediately put into, but as Shunde Haier Co., Ltd. borrowers. The production profit equal installments over three years three times the share of Haier Group holding repay.
(1) the asset-backed body modifications, that becomes the target company asset-backed asset-backed acquirer. The leveraged buyout is the target company's assets as a financing guarantee. Forwarded by the General Office of the State Council on regulating the work of the restructuring of state-owned enterprises. "Clearly states:" to raise funds for the acquisition of state-owned property managers, to the implementation of the relevant provisions of the General Rules on Loans, not to the enterprises, including state-owned and state-owned holding corporate borrowers and not for the subject matter of these enterprises are state-owned property or physical assets to provide a guarantee for the financing, mortgage, pledge, discount. "This means LBO form of financing in the reform of state-owned enterprises useless. Leveraged buyouts, but we can consider the acquiree's assets as collateral, in order to avoid the potential financial risks.
(2) reduce the leverage ratio, the proportion of investment and improve the acquirer's own funds, and to control the issuance of bonds of low credit rating, increase the proportion of high credit companies and financial institutions in financing participants, increase institutional investors (insurance, banks, investment banks and credit rating companies). Combined with the actual situation of China's financial institutions and leveraged buyout financing structure should be the main priority debt, make it a preferred financing leveraged finance capital structure of Chinese enterprises. Senior debt provided by commercial banks and investment banks, insurance companies, trust and investment companies, Enterprise Group, finance companies and other financial intermediaries.
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