The High Frequency Trading (HFT) has grown considerably in recent years and today represent the AMF according to 90% of orders sent to the market and about 30% of actual transactions in Europe and Further more. The proportions taken by this practice are as worried. While the regulator, after leading an important discussion on these topic proposals currently before the European Parliament that could lead to a new framework for HFT in 2013, French MPs have meanwhile passed a law to tax this type of exchange on February 16.
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This dynamic cache, however, concerns related to the evolution of the activity. One of the first consequences of market development of private equity buyout is the generalization of so-called secondary, tertiary and even quaternary view, consisting of leveraged acquisitions of companies already owned by one or more other funds. In 2006, the third type of LBO acquisitions was made through these resale between funds. This type of assembly raises serious concerns particularly related to the high level of debt in these successive operations, which raised fears of a bubble bursting. Indeed, the succession of holding recovery strengthens the total weight of debt in financing the acquisition. But a classic LBO average 70% funded by debt. We can now understand the anxieties expressed about the level of debt when several successive LBOs are made on the same entity.
On the other hand, in a context of rising interest rates, the sector should experience difficulties, but still far from an economic downturn. Indeed, this market should continue to grow in the coming years, particularly in France where many companies are to sell, LBO funds have gained credibility recognized, will no doubt key players in the market.
The number of mega deals (ie acquisitions exceeding the one billion Euros) is more important, the private equity funds have no choice but to raise more funds. This requires, of course, on the one hand by increasing the resources collected from traditional capital providers. But also, for the sake of being less dependent on suppliers of capital and at the same time less sensitive to changes (particularly increased) interest rates on financial markets, the alternative "fund raising" on the stock market seems obvious. The money, usually so discrete and whose activity is based on the original financing of non hand, may now be found in the coast!
Then, the low cost of debt, due to low interest rates, gives montages leveraged a significant advantage over other types of acquisition financing transactions. They are based mainly on debt financing of target companies, the current environment when they are particularly favorable to more easily identify a margin between the cost of debt and the return on assets under management. However, this cannot alone suffice to explain the strong growth in activity. Private equity has above all recognition in the governance model in place in companies come under LBO financing. These companies are generally better managed and better valued, and even if some failures can be reported (ten more than 200 annual operations in France), we must recognize that the default rate of the sector is quite low and few are examples of clashes in the area of corporate governance.
Governance is indeed one of the key parameters of a company came under LBO financing. To repay debt must quickly generate cash flow. However, it is recognized that improving the economic value of a target company depends, in large part by the optimization model that will be applied. Therefore, LBO funds agree, from acquisition, to establish a mode of corporate governance more efficient and take the form of a greater focus, accountability of management (generally a shareholder as a result of the operation) and optimization of financial assets.
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.