Leveraged buyouts or better known as LBOs, have a greater bad reputation than a good one. Contrary to the common belief of LBO not being an ideal thing for a business, an LBO can work wonders for a company undergoing heavy crisis, and can also take it to a place where it will flourish.
Taking over or buying out a company is what leveraged buyout refers to. The buyer could be anyone, it could be an outside private equity firm, an employee or the present management too. It is not always necessary that a company faced with situations of bankruptcy or unimaginable crisis, go through a buyout. It could well be a part of someone’s business strategy.
All LBOs should not be considered as predators. This is exactly what the media always portrays an LBO as. According to their reports, they consider any sort of buyout, whether leveraged or not, to be dangerous and destructive for an average investor. They have painted the picture of the buyout as that which causes huge restructurings and finally culminates in bankruptcy.
All this is a farce, as Emily Muhleman can safely vouch for. She is an expert in several areas of finance with the creation of LBO models as one of her strengths. She is also highly capable of making flawless financial models and has worked in Microcap Investment where she was a partner. The other feathers in her cap comprise of equity analysis and research as well.
It is true that just like any other financial equipment, the LBO too has its own positive and negative effects. There are four major situations under which a buyout is executed. They are namely: a repackaging plan, the split-up, the portfolio and the saviour plan.
The repackaging plan is a scenario in which a private equity company takes over a public company by buying all of its outstanding stock. This is processed with the help of the leveraged loans taken by the buyer firm. This acquired company is then, kind of kept under covers to escape the eyes of the shareholders, during which certain alterations are made in it. Once the changes are done, then the acquiring company may again put this acquired firm as an IPO in the market. The original shareholders of the acquired company are the ones who benefit the maximum from this type of LBO.
The split off is the one that is feared by most employees and the management itself. It is because, the concerned company here is a conglomeration, which means its value is more when it is broken up into parts. Such a buyout is carried out by an outsider and usually it is broken up into its various parts after it’s bought and further given to the highest bidder.
Emily Muhleman has been creating the best LBO models and will surely enlighten you with the kind of repercussions any buyout would have for your company. The portfolio plan is said to be an all advantageous buyout wherein, the buyer, the management and the employees too benefit from it. So, you see not all LBOs are predators.