Thursday, June 23, 2011

The Private Equity, a market with strong growth driver - part II


The Private Equity, also known financing LBO (Leverage Buy-Out) groups for its funding and leveraged acquisitions of target companies, usually mature companies with strong growth potential. LBO funds - often associated with managers of the target - develop installation and operation of acquisition of the company with the objective to remain the capital of the latter ideally between 5 and 10 years while significantly improving the result of the business recovery. The solutions for output or funds are then variables: initial public offering, taken over by another fund, an industrial sales ...

Born in the USA, in the 60's, with the purchase by McLean Industries Inc.. Waterman Steamship Corporation, this type of acquisition has been truly popular in the '80s under the aegis of funds such as KKR who have made significant transactions in the image of the acquisition of RJR Nabisco for more 36 billion dollars (which was then the first landmark LBO). The event was followed by a steady evolution for twenty years, but no relation to the recent explosion.

This momentum is the result of a combination of several positive key factors. The first of these is an abundance of liquidity in financial markets. Attracted by high yields (15-16% on average), liquidity providers (banks and insurance institutions, pension funds and private wealth) do not hesitate to fill the capital market allows investors to raise funds more increasingly important. Direct consequence, the number of LBOs has increased but more importantly, the number of very large transactions (over one billion Euros. SMEs are no longer the only target of LBO financing transactions, large groups of interest to certain funds, particularly in terms of business management. So after the frenzy of acquisitions recorded in recent years, these groups now intends to liquidate their related activities generate higher margins.

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