Question

What is the relevance of Leveraged buyouts (LBOs) to Mergers, Acquisitions and Divestitures?

Answer 1

Leveraged buyout will be occurring when a purchaser will be purchasing a company with almost entirely that and the purchaser will be securing the debt with Assets of the company and they will be acquiring it and assuming the debt.

Relevance of leveraged buyouts would be as follows-

A. To privatise a public company leveraged buyout will be helping in consolidation of the public stake in the hands of the private investors who will be taking the shares off the market.

B. It will also be helping in divestiture as it will be helping in breaking up a large company and it will be trying to break these larger inefficient company into smaller efficient companies.

C. leveraged buyout will be also helping in mergers and acquisitions and it will be helping to improve the performance of the underperforming company

D. leveraged buyout will also be helping in enrichment of the shareholders through maximization of the value of the shareholders in the company.

E. Leveraged buyout is less risky method as it will be trying to purchase the Asset after securing the debt with the Assets of the company

Hence these leveraged buyout will be helping in various different strategic planning like mergers and acquisitions along with divestiture which will help a large number of company to survive and sustain and maximize the value in the economy.