LAWSG099 - Exit Strategies in Leveraged Buyouts: UK and India
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This report provides a detailed analysis of leveraged buyout (LBO) exit strategies employed by companies in the UK and India. It explores the concept of LBOs, their sources of funding, and various exit strategies used by companies to generate returns and mitigate losses. The report compares LBO exit strategies in the UK and India, using case studies to illustrate the differences and similarities. It also discusses the evolution of LBOs over time, legal considerations, and the implications of Brexit. The study emphasizes the role of portfolio companies in LBO transactions and highlights the increasing popularity of LBO exit strategies among private equity firms. Desklib offers this document along with a wealth of study tools for students.
LAWSG099
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Contents
Introduction................................................................................................................................................ 3
Section 1....................................................................................................................................................4
1.1 LBO and its Sources......................................................................................................................4
1.2 Exit Strategies....................................................................................................................................6
1.3 Process of exit from an LBO transactions and role of Portfolio Company.........................................9
Section 2: Comparison of UK scenario with major Indian LBOs......................................................11
2.1 Case study examples of LBO transaction exit strategies of UK.............................................11
2.2 Case study examples of LBO transaction exit strategies of India..........................................13
2.3 Comparative analysis of exit strategies of both companies....................................................16
Section 3..................................................................................................................................................18
3.1 Development and evolution over decades of LBO..................................................................18
3.2 Legal considerations and implications....................................................................................... 21
References.............................................................................................................................................. 23
2
Introduction................................................................................................................................................ 3
Section 1....................................................................................................................................................4
1.1 LBO and its Sources......................................................................................................................4
1.2 Exit Strategies....................................................................................................................................6
1.3 Process of exit from an LBO transactions and role of Portfolio Company.........................................9
Section 2: Comparison of UK scenario with major Indian LBOs......................................................11
2.1 Case study examples of LBO transaction exit strategies of UK.............................................11
2.2 Case study examples of LBO transaction exit strategies of India..........................................13
2.3 Comparative analysis of exit strategies of both companies....................................................16
Section 3..................................................................................................................................................18
3.1 Development and evolution over decades of LBO..................................................................18
3.2 Legal considerations and implications....................................................................................... 21
References.............................................................................................................................................. 23
2
Introduction
Merger & Acquisition is a financial process which involves the consolidation of two or more
companies or combining the assets of two or more companies through legal and financial
transactions. This process has a wide scope and covers different types of acquisitions, buyouts
and mergers taking place in different forms12. In the present era of globalization the acquisitions
and mergers among companies is not confined to domestic companies but has extended to
cross border and international mergers3. The companies in one country are acquiring
companies abroad as a strategy of foreign investment and global business expansion4. Recently
a decision was announced on 7th August 2018 under the Competition Act by CMA5 for
acquisition of part of business of Airline Services Limited by Menzies Aviation (UK) Limited6.
Similar to this there are multiple examples of buyouts and acquisitions taking place in both
public and private sector in various areas7. The companies which intend to escape themselves
from losses and prevent themselves against insolvency are involving more in the buyout and
acquisition processes8. This is used as the financial strategy in order to deal with the financial
problems. This research aims at providing discussion and detailed analysis about the use of exit
strategies by various companies across India and UK in order to escape themselves from huge
losses and procure increased returns9. The process involved in the LBO transactions well as the
role of the portfolio and target company while entering an LBO transaction and exit from a LBO
transaction are the major research objectives of this paper. The first section of the study deals
with the meaning and explanation of LBO transactions including various examples of recent
LBO transactions, strategies used by companies to exit an LBO and the major ole of portfolio
company in LBO transaction and implementation of exit strategy. The second section compares
the exit strategies of UK and India for an LBO transaction with various examples. The third
section relates to the manner in which the use of excessive LBO transaction exit strategies by
the companies evolved over the period. The generally used methods and processes for exit
from an LBO transaction and the legal and regulatory implications and effect of Brexit in the
development of LBO processes have also been discussed in the third section of the study.
Steven and Per (2008), defines leveraged buyout as a specialized investment which is financed
by both private equity and long-term debt. However for financing a leveraged buyout, the portion
of debt is higher than the portion of equity. On the other hand private equity firms are those
companies which raise fund from investing in private equity. These funds have fixed life of ten
years and are generally closed-ended10. When a private equity firm agrees to buy a private
company then such type of transaction is referred to as the Private Equity Transaction. This
type of buyout is financed from 60 to 90% debt and is therefore regarded as leveraged buyout11.
1 Leveraged buyout is part of merger and acquisition.
2 Combinations can be in the form of investing or divesting strategies. Investing include mergers and
acquisitions and divesting include split-off, spin-off and carve out.
3 These mergers can be horizontal merger, vertical merger, conglomerate merger or extensive mergers.
4 Competition Act 1998 and Enterprise Act 2002 in UK.
5 Certified Management Accountant which is the apex body for controlling and monitoring management
accountants
6 Menzies Airlines (UK) Limited/Airline Services Limited v CMA [2018]
7 Discussed in DSection 2 of this paper
8 Breno Schmidt. ‘Costs and benefits of friendly boards during mergers and acquisitions.’[2015]
117 Journal of Financial Economics 424.
9 Competition Act 2002 and Restrictive Trade Practices Act 1969 in India.
10 Steven and Per [2008]
11 LBO can be in the form of takeover, merger under equals or low touch ownership.
3
Merger & Acquisition is a financial process which involves the consolidation of two or more
companies or combining the assets of two or more companies through legal and financial
transactions. This process has a wide scope and covers different types of acquisitions, buyouts
and mergers taking place in different forms12. In the present era of globalization the acquisitions
and mergers among companies is not confined to domestic companies but has extended to
cross border and international mergers3. The companies in one country are acquiring
companies abroad as a strategy of foreign investment and global business expansion4. Recently
a decision was announced on 7th August 2018 under the Competition Act by CMA5 for
acquisition of part of business of Airline Services Limited by Menzies Aviation (UK) Limited6.
Similar to this there are multiple examples of buyouts and acquisitions taking place in both
public and private sector in various areas7. The companies which intend to escape themselves
from losses and prevent themselves against insolvency are involving more in the buyout and
acquisition processes8. This is used as the financial strategy in order to deal with the financial
problems. This research aims at providing discussion and detailed analysis about the use of exit
strategies by various companies across India and UK in order to escape themselves from huge
losses and procure increased returns9. The process involved in the LBO transactions well as the
role of the portfolio and target company while entering an LBO transaction and exit from a LBO
transaction are the major research objectives of this paper. The first section of the study deals
with the meaning and explanation of LBO transactions including various examples of recent
LBO transactions, strategies used by companies to exit an LBO and the major ole of portfolio
company in LBO transaction and implementation of exit strategy. The second section compares
the exit strategies of UK and India for an LBO transaction with various examples. The third
section relates to the manner in which the use of excessive LBO transaction exit strategies by
the companies evolved over the period. The generally used methods and processes for exit
from an LBO transaction and the legal and regulatory implications and effect of Brexit in the
development of LBO processes have also been discussed in the third section of the study.
Steven and Per (2008), defines leveraged buyout as a specialized investment which is financed
by both private equity and long-term debt. However for financing a leveraged buyout, the portion
of debt is higher than the portion of equity. On the other hand private equity firms are those
companies which raise fund from investing in private equity. These funds have fixed life of ten
years and are generally closed-ended10. When a private equity firm agrees to buy a private
company then such type of transaction is referred to as the Private Equity Transaction. This
type of buyout is financed from 60 to 90% debt and is therefore regarded as leveraged buyout11.
1 Leveraged buyout is part of merger and acquisition.
2 Combinations can be in the form of investing or divesting strategies. Investing include mergers and
acquisitions and divesting include split-off, spin-off and carve out.
3 These mergers can be horizontal merger, vertical merger, conglomerate merger or extensive mergers.
4 Competition Act 1998 and Enterprise Act 2002 in UK.
5 Certified Management Accountant which is the apex body for controlling and monitoring management
accountants
6 Menzies Airlines (UK) Limited/Airline Services Limited v CMA [2018]
7 Discussed in DSection 2 of this paper
8 Breno Schmidt. ‘Costs and benefits of friendly boards during mergers and acquisitions.’[2015]
117 Journal of Financial Economics 424.
9 Competition Act 2002 and Restrictive Trade Practices Act 1969 in India.
10 Steven and Per [2008]
11 LBO can be in the form of takeover, merger under equals or low touch ownership.
3
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The portfolio company is the company which is bought by the investors in order to invest their
funds and generate returns12. The decision about selecting the portfolio company is an
important part of entering or leaving the LBO transaction since the assets of the portfolio
company are used as security for the debt financing of the LBO transaction13.
The majority of private firms are leading towards the leveraged buyouts using the outside debt14.
Thus, this report aims at exploring the methods and exit strategies which are used by the firms
for leveraged buyout transactions and exit from such transactions15. This reports aims at
research about the factors and implications due to which the leveraged buyout deals in India are
easier as compared to those in UK16. Also this research empirically explains the manner in
which the exit strategies17 gained popularity among the private equity firms and companies in
the global market.
Section 1
1.1 LBO and its Sources
The leverage buyout is related to the acquisition of company in which the money is put by both
the buyer and the borrower but the amount of the buyer is less than that of the borrower18. In
other words, it can also be said that it is the financial transaction in which the organization
purchases the combination of both debt and equity so that the cash flow which is generated can
be used in future to pay off the borrowed money19. These transactions are also called as the
highly leveraged transactions as it leads to profitability by the generation of ample of cash. The
LBO’s are used for three purposes which are20:
Taking a Public Company Private
Financing Spin- offs
For transferring the private property related to the changes in small business
Public to Private
In this the investor buys all the property or the outstanding stock of the public limited company
and turns the company into the privately held enterprise21. There may be two cases in the
management the one is friendly and another is hostile. In friendly, the management buys the
company for itself with the aim to operate it in future as the private entity22. The hostile involves
12 The portfolio company is selected on the basis of the net worth calculated on the basis of fair value of assets.
13 Portfolio company in a leveraged buyout transaction is the one which is acquired by the target company.
14 Rongbing Huang, Ritter Jay and Zhang Donghang. ‘Private equity firms’ reputational concerns and the
costs of debt financing.’ [2016] 51 Journal of Financial and Quantitative Analysis 29.
15 Leveraged Buyouts and Private Equity, u: Bratton, WW, McCahery,
16 In context of laws and legislations
17 Exit from an overseas LBO
18 The remaining amount is financed from equity
19 LBO’s are also called bootstraps
20 These are the main aim of the LBO so as to make changes accordingly.
21 100% ownership is acquired by investors which is private company
22 Street of Walls, ‘Leveraged Buyout Analysis’ [2013] Street of Walls <
http://www.streetofwalls.com/finance-training-courses/investment-banking-technical-training/leveraged-
buyout-analysis/> Accessed 10 August 2018
4
funds and generate returns12. The decision about selecting the portfolio company is an
important part of entering or leaving the LBO transaction since the assets of the portfolio
company are used as security for the debt financing of the LBO transaction13.
The majority of private firms are leading towards the leveraged buyouts using the outside debt14.
Thus, this report aims at exploring the methods and exit strategies which are used by the firms
for leveraged buyout transactions and exit from such transactions15. This reports aims at
research about the factors and implications due to which the leveraged buyout deals in India are
easier as compared to those in UK16. Also this research empirically explains the manner in
which the exit strategies17 gained popularity among the private equity firms and companies in
the global market.
Section 1
1.1 LBO and its Sources
The leverage buyout is related to the acquisition of company in which the money is put by both
the buyer and the borrower but the amount of the buyer is less than that of the borrower18. In
other words, it can also be said that it is the financial transaction in which the organization
purchases the combination of both debt and equity so that the cash flow which is generated can
be used in future to pay off the borrowed money19. These transactions are also called as the
highly leveraged transactions as it leads to profitability by the generation of ample of cash. The
LBO’s are used for three purposes which are20:
Taking a Public Company Private
Financing Spin- offs
For transferring the private property related to the changes in small business
Public to Private
In this the investor buys all the property or the outstanding stock of the public limited company
and turns the company into the privately held enterprise21. There may be two cases in the
management the one is friendly and another is hostile. In friendly, the management buys the
company for itself with the aim to operate it in future as the private entity22. The hostile involves
12 The portfolio company is selected on the basis of the net worth calculated on the basis of fair value of assets.
13 Portfolio company in a leveraged buyout transaction is the one which is acquired by the target company.
14 Rongbing Huang, Ritter Jay and Zhang Donghang. ‘Private equity firms’ reputational concerns and the
costs of debt financing.’ [2016] 51 Journal of Financial and Quantitative Analysis 29.
15 Leveraged Buyouts and Private Equity, u: Bratton, WW, McCahery,
16 In context of laws and legislations
17 Exit from an overseas LBO
18 The remaining amount is financed from equity
19 LBO’s are also called bootstraps
20 These are the main aim of the LBO so as to make changes accordingly.
21 100% ownership is acquired by investors which is private company
22 Street of Walls, ‘Leveraged Buyout Analysis’ [2013] Street of Walls <
http://www.streetofwalls.com/finance-training-courses/investment-banking-technical-training/leveraged-
buyout-analysis/> Accessed 10 August 2018
4
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the buying of company and then reorganizing it once this is done the last step is to resell the
organization so that the higher returns can be attained23.
Financing Spin-Off
In many of the cases the companies wish to sell the elements of the business so as to gain the
cash. But sometimes the management itself is the buyer of spun off elements so as to get the
cash and the amount can be paid to the investors back. The LBO’s are used to purchase the
subsidiary or the part24.
Private Deals for renunciation of ownership
This is the last case in which the privately held operations are brought by the investor’s group.
In this case the business owner has reached the retirement age but neither sells his company
nor approaches the corporate buyer but likes to dissociate him/ her from the organization25. The
buyers are the employees of the organization or some other person associated with owner and
them wishes to organize the LBO’s as they have the limited amount of equity26.
Sources of LBO
The financing of the Leverage buyout are generally executed by the private equity groups. The
equity is also used when the existing ownership of the business is about to exit27. With the
equity which is provided by the private equity they also use the borrowed funds to negotiate the
total purchases price while the buyout is done28. The multiple sources of debt29 which are
commonly used to finance LBO’s are as follows:
Bank Debt: The bank debt is the lowest interest rate security than that of the subordinated
debt. It usually requires full payback within a period of 5-8 years30. The private equity sponsors
use the borrowed funds from the bank to finance their business. The bank debts have the
financed maintenance covenants which are secured by the assets by the borrower and the tests
are also performed quarterly to measure performance31.
Subordinated Debt: These are also known as Mezzanine Debt or the Junior Debt32. This
method is one of the common methods which are used for borrowing during an LBO. These are
the high yield debts so are taken into the conjunction with the senior debts. They have the
feature of both equity as well as debt. The subordinate debt is issued to bridge the gap between
IRR and the investment so that the investors can get attracted by the hedge fund investor.
23 This is the process through which the leverage buyout is performed.
24 In these types of LBO transactions, only a part of business is acquired.
25 Investment Banking, 2014
26 Axelson, Strömberg, & Weisbach. ‘Why are buyouts levered? The financial structure of private equity funds’
[2009] 64(4)The Journal of Finance 1549.
27, Shai Bernstein, Lerner Josh, Sorensen Morten and Strömberg Per. ‘Private equity and industry
performance.’ [2016] 63(4) Management Science 1198.
28 Also known as private equity Leveraged buyout
29 Outside debt
30 Macabacus, ‘Capital Structure of an LBO’ [2018] Macabacus <
http://macabacus.com/valuation/lbo/capital-structure> Accessed 10 August 2018
31 It covers 30-50% of the capital structure
32 These are both secured and unsecured by some of the assets which are secured by more senior debts.
5
organization so that the higher returns can be attained23.
Financing Spin-Off
In many of the cases the companies wish to sell the elements of the business so as to gain the
cash. But sometimes the management itself is the buyer of spun off elements so as to get the
cash and the amount can be paid to the investors back. The LBO’s are used to purchase the
subsidiary or the part24.
Private Deals for renunciation of ownership
This is the last case in which the privately held operations are brought by the investor’s group.
In this case the business owner has reached the retirement age but neither sells his company
nor approaches the corporate buyer but likes to dissociate him/ her from the organization25. The
buyers are the employees of the organization or some other person associated with owner and
them wishes to organize the LBO’s as they have the limited amount of equity26.
Sources of LBO
The financing of the Leverage buyout are generally executed by the private equity groups. The
equity is also used when the existing ownership of the business is about to exit27. With the
equity which is provided by the private equity they also use the borrowed funds to negotiate the
total purchases price while the buyout is done28. The multiple sources of debt29 which are
commonly used to finance LBO’s are as follows:
Bank Debt: The bank debt is the lowest interest rate security than that of the subordinated
debt. It usually requires full payback within a period of 5-8 years30. The private equity sponsors
use the borrowed funds from the bank to finance their business. The bank debts have the
financed maintenance covenants which are secured by the assets by the borrower and the tests
are also performed quarterly to measure performance31.
Subordinated Debt: These are also known as Mezzanine Debt or the Junior Debt32. This
method is one of the common methods which are used for borrowing during an LBO. These are
the high yield debts so are taken into the conjunction with the senior debts. They have the
feature of both equity as well as debt. The subordinate debt is issued to bridge the gap between
IRR and the investment so that the investors can get attracted by the hedge fund investor.
23 This is the process through which the leverage buyout is performed.
24 In these types of LBO transactions, only a part of business is acquired.
25 Investment Banking, 2014
26 Axelson, Strömberg, & Weisbach. ‘Why are buyouts levered? The financial structure of private equity funds’
[2009] 64(4)The Journal of Finance 1549.
27, Shai Bernstein, Lerner Josh, Sorensen Morten and Strömberg Per. ‘Private equity and industry
performance.’ [2016] 63(4) Management Science 1198.
28 Also known as private equity Leveraged buyout
29 Outside debt
30 Macabacus, ‘Capital Structure of an LBO’ [2018] Macabacus <
http://macabacus.com/valuation/lbo/capital-structure> Accessed 10 August 2018
31 It covers 30-50% of the capital structure
32 These are both secured and unsecured by some of the assets which are secured by more senior debts.
5
Seller Financing: In this the actual company ownership lends the money to the company to
which the organization needs to be sold. The delayed payment is taken by the seller by creating
the obligations that of debt for the company which in turn creates financing for the buyout.
These can also be said as the seller notes. These notes are attractive to the financial buyer as
they are cheaper than the other source and also can easily be negotiable with bank or other
sources.
Revolver: This is the revolving credit facility which is in the form of senior bank debts and acts
like the credit card for companies. It is basically used to finance the working capital
requirements of the organization. There are basically two costs available with the revolving lines
of credit. This financing is done so that the flexibility can be taken in the credit needs of the
customers. With this facility it allows the company to access their cash without looking forward
for any of the additions funds through debt or equity33.
Common Equity: This is contributed through the private equity fund which helps in raising the
capital from various sources such as the insurance companies, the wealthy individuals, pension
and endowments34.
These are the various ways through which the financing of LBO’s are done and the growth has
been achieved35. These sources provide the funds so that the operations of the business may
not harm and the profitability of the firm can be enhanced36.
1.2 Exit Strategies
The private equity fund when makes investment which is controlled in the portfolio through the
leveraged buyout are financed through debts. The remaining amount comes from the equity
contributions through the owner’s capital or funded by the investors37. The investment is done
with the view of increasing the company’s value also getting the positive returns. The exit occurs
after many years of investment when the company is not getting many returns38. The most
common exit routes include initial public offerings, selling of shares after the IPO to registered
secondary offerings or Rule 144 under Securities Act of 1933 and sales to third party39.
Initial Public Offerings: When the completion of LBO is done the sponsor must ensure that it
has proper control and the registration rights to participate in an IPO40. The IPO allows the LBO
sponsors to make the cash in the investment of the firm and also provides the cash flow to the
investors in the private equity firm41. The help of the lead investment bank is taken by LBO so
that the company can be public. When the exit of the funds is done through IPO, it offers the
shares to public which are of Portfolio Company or the parent holding company42.
33 These are generally for small buyout transactions.
34 This involves fund raising from general public
35 The selection of debt financing is based on the factors influencing the LBO.
36 Blackman. ‘Private Equity Has More Than It Can Spend’ Wall street journal.
37 Didier Folus and Emmanuel Boutron, ‘Exit Strategies in Private Equity’ [2015] Research Gate 215
38 Presently exit from an LBO is also done to generate profits through arbitrage.
39 Securities Act, 1933
40 Shares of portfolio company are sold
41 It allows direct financing
42 Practice law, 2018
6
which the organization needs to be sold. The delayed payment is taken by the seller by creating
the obligations that of debt for the company which in turn creates financing for the buyout.
These can also be said as the seller notes. These notes are attractive to the financial buyer as
they are cheaper than the other source and also can easily be negotiable with bank or other
sources.
Revolver: This is the revolving credit facility which is in the form of senior bank debts and acts
like the credit card for companies. It is basically used to finance the working capital
requirements of the organization. There are basically two costs available with the revolving lines
of credit. This financing is done so that the flexibility can be taken in the credit needs of the
customers. With this facility it allows the company to access their cash without looking forward
for any of the additions funds through debt or equity33.
Common Equity: This is contributed through the private equity fund which helps in raising the
capital from various sources such as the insurance companies, the wealthy individuals, pension
and endowments34.
These are the various ways through which the financing of LBO’s are done and the growth has
been achieved35. These sources provide the funds so that the operations of the business may
not harm and the profitability of the firm can be enhanced36.
1.2 Exit Strategies
The private equity fund when makes investment which is controlled in the portfolio through the
leveraged buyout are financed through debts. The remaining amount comes from the equity
contributions through the owner’s capital or funded by the investors37. The investment is done
with the view of increasing the company’s value also getting the positive returns. The exit occurs
after many years of investment when the company is not getting many returns38. The most
common exit routes include initial public offerings, selling of shares after the IPO to registered
secondary offerings or Rule 144 under Securities Act of 1933 and sales to third party39.
Initial Public Offerings: When the completion of LBO is done the sponsor must ensure that it
has proper control and the registration rights to participate in an IPO40. The IPO allows the LBO
sponsors to make the cash in the investment of the firm and also provides the cash flow to the
investors in the private equity firm41. The help of the lead investment bank is taken by LBO so
that the company can be public. When the exit of the funds is done through IPO, it offers the
shares to public which are of Portfolio Company or the parent holding company42.
33 These are generally for small buyout transactions.
34 This involves fund raising from general public
35 The selection of debt financing is based on the factors influencing the LBO.
36 Blackman. ‘Private Equity Has More Than It Can Spend’ Wall street journal.
37 Didier Folus and Emmanuel Boutron, ‘Exit Strategies in Private Equity’ [2015] Research Gate 215
38 Presently exit from an LBO is also done to generate profits through arbitrage.
39 Securities Act, 1933
40 Shares of portfolio company are sold
41 It allows direct financing
42 Practice law, 2018
6
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Advantage: The main advantage is that it helps in higher valuation of Portfolio Company than
better in future exit as compared to the exclusively private valuation techniques.
Disadvantage: The drawback is that it is the lengthy process and takes at least four to six
months43. With this it also requires the underwriting agreement that the funds do not sell any of
the shares in the portfolio company for about 180 days which is also called as the lock up
period44.
Selling shares after the IPO: The sponsor after selling it through the IPO may not sell all the
funds invested in the portfolio company so to comply with the full exit the shares in the
unregistered sales are sold according to the rule 144 under the securities Act45.
Under Rule 144: When the private company shares are purchased by the funds then it is
called as the restricted securities46. These securities are only resold in the transactions
which are registered with the SEC47. Under rule 144 the resale of the restricted securities
are exempted from the registration.
Secondary Registered offerings: The secondary offerings are the resale of the shares
which are held with the shareholders instead of the primary offering of shares by company
itself. The sponsor has to first file the registration statement with the SEC for selling the
shares48. These are less time consuming but the registration process is expensive than the
IPO. This exit option is preferred because of its flexibility and speed49.
Sale to a Third Party: This is another exit option for the LBO that the portfolio of company is
sold to the third party. The third party may include the strategic buyer such as the competitor or
the supplier of the portfolio company or the financial buyer such as such as the other financial
purchaser. The selling to the strategic buyer is one of the most common strategies which are
preferred for the exit as it’s quick and simple50. From the point of view of the seller this strategy
is clean as the sponsors of LBO are directly negotiating with the buyers as well as the advisors
of bank. The premium is also paid by the strategic buyer for the purchase51. The strategic buyer
thinks that the synergy is offered by the targeted company to the business line.
Another Leveraged Buyout: This is the exit strategy in which is used for the alternative equity
deals. In this the portfolio of the company is sold to another private equity firm which will put the
firm through the secondary LBO. This is basically used when the LBO sponsor needs to exit the
deal and the amount of the capital is returned to the limited partners52.
43 It varies as per the legislations of different countries
44 The 180 days are determined in which the shares of the portfolio company are kept locked and which in
turn the lengthy process becomes.
45 Macabacus, ‘Capital Structure of an LBO’ [2018] Macabacus <
http://macabacus.com/valuation/lbo/capital-structure> Accessed 10 August 2018
46 Due to prohibition under Companies Act of UK
47 Under Section 5 of Securities Act of 1933 rule 144 provides the exemption as well as the permits for the
resale of securities which are restricted and controlled.
48 It includes the strategies of public offerings under Rule 144, resale.
49 Converted into equity
50 This process involves selling of the firm to the third party.
51 According to Laurence Levy, Frank Miller and Jeremy Kutner, 2018
52 20-35% of the capital structure are the common equities.
7
better in future exit as compared to the exclusively private valuation techniques.
Disadvantage: The drawback is that it is the lengthy process and takes at least four to six
months43. With this it also requires the underwriting agreement that the funds do not sell any of
the shares in the portfolio company for about 180 days which is also called as the lock up
period44.
Selling shares after the IPO: The sponsor after selling it through the IPO may not sell all the
funds invested in the portfolio company so to comply with the full exit the shares in the
unregistered sales are sold according to the rule 144 under the securities Act45.
Under Rule 144: When the private company shares are purchased by the funds then it is
called as the restricted securities46. These securities are only resold in the transactions
which are registered with the SEC47. Under rule 144 the resale of the restricted securities
are exempted from the registration.
Secondary Registered offerings: The secondary offerings are the resale of the shares
which are held with the shareholders instead of the primary offering of shares by company
itself. The sponsor has to first file the registration statement with the SEC for selling the
shares48. These are less time consuming but the registration process is expensive than the
IPO. This exit option is preferred because of its flexibility and speed49.
Sale to a Third Party: This is another exit option for the LBO that the portfolio of company is
sold to the third party. The third party may include the strategic buyer such as the competitor or
the supplier of the portfolio company or the financial buyer such as such as the other financial
purchaser. The selling to the strategic buyer is one of the most common strategies which are
preferred for the exit as it’s quick and simple50. From the point of view of the seller this strategy
is clean as the sponsors of LBO are directly negotiating with the buyers as well as the advisors
of bank. The premium is also paid by the strategic buyer for the purchase51. The strategic buyer
thinks that the synergy is offered by the targeted company to the business line.
Another Leveraged Buyout: This is the exit strategy in which is used for the alternative equity
deals. In this the portfolio of the company is sold to another private equity firm which will put the
firm through the secondary LBO. This is basically used when the LBO sponsor needs to exit the
deal and the amount of the capital is returned to the limited partners52.
43 It varies as per the legislations of different countries
44 The 180 days are determined in which the shares of the portfolio company are kept locked and which in
turn the lengthy process becomes.
45 Macabacus, ‘Capital Structure of an LBO’ [2018] Macabacus <
http://macabacus.com/valuation/lbo/capital-structure> Accessed 10 August 2018
46 Due to prohibition under Companies Act of UK
47 Under Section 5 of Securities Act of 1933 rule 144 provides the exemption as well as the permits for the
resale of securities which are restricted and controlled.
48 It includes the strategies of public offerings under Rule 144, resale.
49 Converted into equity
50 This process involves selling of the firm to the third party.
51 According to Laurence Levy, Frank Miller and Jeremy Kutner, 2018
52 20-35% of the capital structure are the common equities.
7
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The main disadvantage is of the hard bargain as the sponsor of the one equity firm will the
another professional of the equity form so sell its portfolio which will involve the great bargain
and the company wishing to exit may get the disadvantage.
Some of another exit strategies are also involved which are as follows:
Recapitalization and Dividends: The partial capital recovery may be achieved by the sponsors
from the investment in the portfolio company by the dividends issued or by the holdings of the
company itself. These types of the dividends are used to finance:
A non-leveraged dividend recapitalization which are financed by the company using
cash that has already been on hand.
The leveraged dividend recapitalization is also financed by the company for incurring
the additional debt.
Non- leveraged dividend recapitalization: These are smaller than that of the leveraged
recapitalization dividends as it relies on the cash which is already in the balance sheet.
Therefore, it may lead to the full capital recovery of the investments which are done for the
funds. These dividends do not lead to the increase in Portfolio Company’s risk or does not
increase in the size of debt service payments53.
Leveraged Dividend recapitalization: These are funded by the patent holdings company
which is taken out of the secured debts by its share in the portfolio of company54. These are
basically preferred by the lenders to issue debts that are incurred by significant amount of debt
in LBO.
Advantage:
Ability to maintain control: These do not require any funds to give up the control to realize its
capital.
Disadvantage:
Market Limitations: In the credit market which is tight it is difficult for the patent holding
company and the portfolio company to secure its finance for recapitalization by forcing the
sponsors to use different strategies so that the liquidity can be gained55.
53 The act of the pubic traded company borrows the capital and the pays the dividends where the use of
the leveraged dividends is to measure the anti-takeover.
54 The dividend recapitalization is the type of the recapitalization in which the payment is made is to the
shareholders.
55 The volume of leveraged buyouts for different variables in Europe is compared with the leveraged
buyouts of UK t estimate the level of buyouts in UK.
8
another professional of the equity form so sell its portfolio which will involve the great bargain
and the company wishing to exit may get the disadvantage.
Some of another exit strategies are also involved which are as follows:
Recapitalization and Dividends: The partial capital recovery may be achieved by the sponsors
from the investment in the portfolio company by the dividends issued or by the holdings of the
company itself. These types of the dividends are used to finance:
A non-leveraged dividend recapitalization which are financed by the company using
cash that has already been on hand.
The leveraged dividend recapitalization is also financed by the company for incurring
the additional debt.
Non- leveraged dividend recapitalization: These are smaller than that of the leveraged
recapitalization dividends as it relies on the cash which is already in the balance sheet.
Therefore, it may lead to the full capital recovery of the investments which are done for the
funds. These dividends do not lead to the increase in Portfolio Company’s risk or does not
increase in the size of debt service payments53.
Leveraged Dividend recapitalization: These are funded by the patent holdings company
which is taken out of the secured debts by its share in the portfolio of company54. These are
basically preferred by the lenders to issue debts that are incurred by significant amount of debt
in LBO.
Advantage:
Ability to maintain control: These do not require any funds to give up the control to realize its
capital.
Disadvantage:
Market Limitations: In the credit market which is tight it is difficult for the patent holding
company and the portfolio company to secure its finance for recapitalization by forcing the
sponsors to use different strategies so that the liquidity can be gained55.
53 The act of the pubic traded company borrows the capital and the pays the dividends where the use of
the leveraged dividends is to measure the anti-takeover.
54 The dividend recapitalization is the type of the recapitalization in which the payment is made is to the
shareholders.
55 The volume of leveraged buyouts for different variables in Europe is compared with the leveraged
buyouts of UK t estimate the level of buyouts in UK.
8
Image: Leverage Buyout Volume
Source: Leveraged Loan.com, 2018
The UK buyout accounted for €2.33 billion56 of the LBO volume in 2016 through which the
sponsors expected the LBO activity to continue in the second half of 2016 even though the UK
decided to leave the European Union by leaving the market participants in the new financing by
picking up the new valuations57.
1.3 Process of exit from an LBO transactions and role of Portfolio Company.
The portfolio in the LBO can be defined as one that includes some of the securities which are
brought with the borrowed money. A Leveraged portfolio is one of the risky ones as it securities
resulted may result a loss and which in turn may increase the liability of the borrower for the
borrowed funds58. There are various processes which are used for the exit of the transactions
which are of leveraged buyout. The process is started from the assumptions related to the
purchase price and ends at the exit from transactions.
Purchase Price Assumptions: the first step is related with making the assumption which is of
the purchase price, debt interest rates and many more59. Such decisions are taken so that the
availability of the cash is made standardized for the repayment of debt over the investment
horizon. The key leverage levels are also determined which provides the actual status of
financial coverage and the credit statistics60.
Create Sources and Uses: The sources involve the decisions which are related to the
availability of the various sources through which the transactions will be financed and the
operations will be made smooth61. This relates to identification of sources of finance of LBO and
56 www.leveragedloan.com
57 LeveragedLoan.com, ‘Leveraged Loan Buyout Volume’ [2018] LeveragedLoan.com <
http://www.leveragedloan.com/in-shadow-of-brexit-ukeuropean-lbo-loan-market-proceeds-with-caution/>
Accessed 10 August 2018
58 Tim Jenkinson and Miguel Sousa, ‘What determines the exit decision for leveraged buyouts’ [2015] 59
Journal of Banking & Finance 399.
59 Buchner, Kaserer, & Wagner. Modeling the cash flow dynamics of private equity funds: Theory and empirical
evidence. The Journal of Alternative Investments, 13(1), 41.
60 The price related assumptions helps in determining the financial leverage of the firm.
9
Source: Leveraged Loan.com, 2018
The UK buyout accounted for €2.33 billion56 of the LBO volume in 2016 through which the
sponsors expected the LBO activity to continue in the second half of 2016 even though the UK
decided to leave the European Union by leaving the market participants in the new financing by
picking up the new valuations57.
1.3 Process of exit from an LBO transactions and role of Portfolio Company.
The portfolio in the LBO can be defined as one that includes some of the securities which are
brought with the borrowed money. A Leveraged portfolio is one of the risky ones as it securities
resulted may result a loss and which in turn may increase the liability of the borrower for the
borrowed funds58. There are various processes which are used for the exit of the transactions
which are of leveraged buyout. The process is started from the assumptions related to the
purchase price and ends at the exit from transactions.
Purchase Price Assumptions: the first step is related with making the assumption which is of
the purchase price, debt interest rates and many more59. Such decisions are taken so that the
availability of the cash is made standardized for the repayment of debt over the investment
horizon. The key leverage levels are also determined which provides the actual status of
financial coverage and the credit statistics60.
Create Sources and Uses: The sources involve the decisions which are related to the
availability of the various sources through which the transactions will be financed and the
operations will be made smooth61. This relates to identification of sources of finance of LBO and
56 www.leveragedloan.com
57 LeveragedLoan.com, ‘Leveraged Loan Buyout Volume’ [2018] LeveragedLoan.com <
http://www.leveragedloan.com/in-shadow-of-brexit-ukeuropean-lbo-loan-market-proceeds-with-caution/>
Accessed 10 August 2018
58 Tim Jenkinson and Miguel Sousa, ‘What determines the exit decision for leveraged buyouts’ [2015] 59
Journal of Banking & Finance 399.
59 Buchner, Kaserer, & Wagner. Modeling the cash flow dynamics of private equity funds: Theory and empirical
evidence. The Journal of Alternative Investments, 13(1), 41.
60 The price related assumptions helps in determining the financial leverage of the firm.
9
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the exit strategies for the LBO. The purpose of entering and exit from an LBo needs to be
specified.
Financial Projections: The projections of the finances are necessary as they helps in
determining that how the repayment will be done to pay back all the debts and also to determine
the value that is paid for the debt every year62. These also help in determining the amount of the
equity that the organization is having.
Balance sheet adjustments: At this stage of exit the transactions of the debt and equity which
are new are adjusted in the balance sheet63 so that the analysis can be made accordingly64.
These are done by the LBO who has the great knowledge about amount of leverage, revenue
growth rates and multiple exits.
Exit: In this stage the exit from the LBO transactions are made which means to evaluate the exit
value which is based on EBITDA for the 5 years and then the net debt is subtracted from the
company’s equity value so that the actual value of the firm can be determined and accordingly
the decision related to exit is taken65.
These were the process steps which are being followed to exit the LBO transactions but the
portfolio company also plays the significant role through which they get influenced and decide to
exit the organization. The portfolio company is the one in which the investors own the equity in
company. The main aim is to increase the value of portfolio and also earns the return in initial
investment. The portfolio company plays the significant role in the LBO as they helps in
enhancing the capital also keeps the short track records of the needs of capital66. These
companies not only help to bring the new business into the market but also help in creating the
jobs so as to boost the economy. The responsibility of the portfolio company is to make the
financial gain as the money is raised by selling the company or growing to through the IPO
process. The private equity firms are not directly involved in the daily operations of the portfolio
company67. The role of them is to add value to the success and the growth of the business by
providing various new inputs into various functional, operational and the strategic aspects of the
business68.
There are various approaches to invest in the portfolio company. The portfolio company had the
major role which helped in the exit from the transactions of LBO. This is due to the reason as it
is already said that many approaches are been adopted so that investments can be made and
the capital of the organization can be enhanced69. The approach can be of the developing an
equity in a company. This option is looked by the company as it helps in adding the diversity
61 Madhu Iyengar, Dimple Pandey and Ninad Jadhav, ‘Different exit modes for PE/VC – A comparative
analysis’ [2016] 12 International Journal of applied research 82.
62 Equities- Debt
63 Fair reporting as per the applicable accounting framework
64 Various adjustments are made in balance sheet related to the new equities as well as debt.
65 Jonathan B. Cohn, Lillian F. Mills and Erin M. Towery, ‘The evolution of capital structure and operating
performance after leveraged buyouts: Evidence from U.S. corporate tax returns’ [2014] 111 Journal of
Financial Economics 469.
66 The growth is enhanced and the capital is increased through the portfolio company.
67 Takeover of ownership is done and not the management of company affairs
68 EBITA= Net Equity-Net Debt
69 An approach adds the diversity which helps in reducing the risk and increasing the opportunities for
growth and development.
10
specified.
Financial Projections: The projections of the finances are necessary as they helps in
determining that how the repayment will be done to pay back all the debts and also to determine
the value that is paid for the debt every year62. These also help in determining the amount of the
equity that the organization is having.
Balance sheet adjustments: At this stage of exit the transactions of the debt and equity which
are new are adjusted in the balance sheet63 so that the analysis can be made accordingly64.
These are done by the LBO who has the great knowledge about amount of leverage, revenue
growth rates and multiple exits.
Exit: In this stage the exit from the LBO transactions are made which means to evaluate the exit
value which is based on EBITDA for the 5 years and then the net debt is subtracted from the
company’s equity value so that the actual value of the firm can be determined and accordingly
the decision related to exit is taken65.
These were the process steps which are being followed to exit the LBO transactions but the
portfolio company also plays the significant role through which they get influenced and decide to
exit the organization. The portfolio company is the one in which the investors own the equity in
company. The main aim is to increase the value of portfolio and also earns the return in initial
investment. The portfolio company plays the significant role in the LBO as they helps in
enhancing the capital also keeps the short track records of the needs of capital66. These
companies not only help to bring the new business into the market but also help in creating the
jobs so as to boost the economy. The responsibility of the portfolio company is to make the
financial gain as the money is raised by selling the company or growing to through the IPO
process. The private equity firms are not directly involved in the daily operations of the portfolio
company67. The role of them is to add value to the success and the growth of the business by
providing various new inputs into various functional, operational and the strategic aspects of the
business68.
There are various approaches to invest in the portfolio company. The portfolio company had the
major role which helped in the exit from the transactions of LBO. This is due to the reason as it
is already said that many approaches are been adopted so that investments can be made and
the capital of the organization can be enhanced69. The approach can be of the developing an
equity in a company. This option is looked by the company as it helps in adding the diversity
61 Madhu Iyengar, Dimple Pandey and Ninad Jadhav, ‘Different exit modes for PE/VC – A comparative
analysis’ [2016] 12 International Journal of applied research 82.
62 Equities- Debt
63 Fair reporting as per the applicable accounting framework
64 Various adjustments are made in balance sheet related to the new equities as well as debt.
65 Jonathan B. Cohn, Lillian F. Mills and Erin M. Towery, ‘The evolution of capital structure and operating
performance after leveraged buyouts: Evidence from U.S. corporate tax returns’ [2014] 111 Journal of
Financial Economics 469.
66 The growth is enhanced and the capital is increased through the portfolio company.
67 Takeover of ownership is done and not the management of company affairs
68 EBITA= Net Equity-Net Debt
69 An approach adds the diversity which helps in reducing the risk and increasing the opportunities for
growth and development.
10
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and the potential of growth to the business. In this the middle market firms are usually favored
as these are less risk and there is the room for growth. The buying out of the company is
another approach in which the shares of the company are purchased so that the interest can be
controlled. The buyers of company think that the assets are undervalued and can be sold so as
to make the profit70. This approach is also preferred as it provides the ability to easily enter into
the market the revenues are high and the competition level is less. The portfolio plays the
important role so that the exit from that of LBO can be provided and the sustainability as well as
the growth within the leveraged buyout can be maintained71.
What is the usual way to exit an LBO? Another LBO?
Generally the leveraged buyouts are carried out using the various exit strategies discussed in
the previous sections. But recently entering into another leveraged buyout to exit from an
existing leveraged buyout is also gaining popularity in various countries all over the world
including UK and India72. This strategy includes forming a new company by acquiring outside
debt for transferring the assets of the previously acquired company through previous LBO. This
is also known as dual track strategy. This strategy is mostly used in volatile and frequent
markets and industry.
Section 2: Comparison of UK scenario with major Indian LBOs
2.1 Case study examples of LBO transaction exit strategies of UK
Acquisition of Nature’s Bounty by KKR
The Kohlberg Kravis Roberts & Co. or KKR & Co.’s has purchased a majority control of Nature’s
Bounty, marketer and distributor of health and wellness products73. The KKR & Co. is
purchasing this from the Global alternative asset manager, The Carlyle Group74. This purchase
was made after Nature’s bounty sold its UK based Holland and Barrett retail chain to the L1
retail. Now the KKR & Co. has purchased Nature’s Bounty, consumer-based products Group.
The business of Nature’s Bounty is to manufacture nutrients and vitamins supplements75. The
company is committed to keeps science and quality standards at the core of its business76. This
will allow the company to develop better products to serve the needs of its customers and
increase the sales of Nature’s Bounty. Additionally, the company has to ensure that the
products sold are of the best quality and the customers are satisfied with these products. This
also makes Nature’ Bounty a leading competitor in the field and will ensure that the company is
able to face competition effectively. The financial position of Nature’s Bounty is positive and the
sale of the company is growing. This will enable the firm to expand its operations and increase
its profitability77. This will also enable The Carlyle Group to secure a better price for its holding in
70 The acquisition is not made on the fair value of assets in this case.
71 Axelson, Jenkinson, Strömberg & Weisbach. ‘ Borrow cheap, buy high? The determinants of leverage and pricing
in buyouts.’ [2013] 68(6) The Journal of Finance 2223.
72 Femino. ‘Ex Ante Review of Leveraged Buyouts’. [2013] 123 Yale Law Journal 1830
73 www.naturesbounty.com
74 www.cartyle.com
75 Bathurst Regional Council v Local Government Financial Services Pty Ltd [2012] FCA 1200
76 Michael C Jensen. ‘Active investors, LBOs, and the privatization of bankruptcy.’[2010] 22 Journal of
applied corporate finance 77
77 Tim Jenkinson and Miguel Sousa. ‘What determines the exit decision for leveraged buyouts?’ [2015]
Journal of Banking and Finance 399.
11
as these are less risk and there is the room for growth. The buying out of the company is
another approach in which the shares of the company are purchased so that the interest can be
controlled. The buyers of company think that the assets are undervalued and can be sold so as
to make the profit70. This approach is also preferred as it provides the ability to easily enter into
the market the revenues are high and the competition level is less. The portfolio plays the
important role so that the exit from that of LBO can be provided and the sustainability as well as
the growth within the leveraged buyout can be maintained71.
What is the usual way to exit an LBO? Another LBO?
Generally the leveraged buyouts are carried out using the various exit strategies discussed in
the previous sections. But recently entering into another leveraged buyout to exit from an
existing leveraged buyout is also gaining popularity in various countries all over the world
including UK and India72. This strategy includes forming a new company by acquiring outside
debt for transferring the assets of the previously acquired company through previous LBO. This
is also known as dual track strategy. This strategy is mostly used in volatile and frequent
markets and industry.
Section 2: Comparison of UK scenario with major Indian LBOs
2.1 Case study examples of LBO transaction exit strategies of UK
Acquisition of Nature’s Bounty by KKR
The Kohlberg Kravis Roberts & Co. or KKR & Co.’s has purchased a majority control of Nature’s
Bounty, marketer and distributor of health and wellness products73. The KKR & Co. is
purchasing this from the Global alternative asset manager, The Carlyle Group74. This purchase
was made after Nature’s bounty sold its UK based Holland and Barrett retail chain to the L1
retail. Now the KKR & Co. has purchased Nature’s Bounty, consumer-based products Group.
The business of Nature’s Bounty is to manufacture nutrients and vitamins supplements75. The
company is committed to keeps science and quality standards at the core of its business76. This
will allow the company to develop better products to serve the needs of its customers and
increase the sales of Nature’s Bounty. Additionally, the company has to ensure that the
products sold are of the best quality and the customers are satisfied with these products. This
also makes Nature’ Bounty a leading competitor in the field and will ensure that the company is
able to face competition effectively. The financial position of Nature’s Bounty is positive and the
sale of the company is growing. This will enable the firm to expand its operations and increase
its profitability77. This will also enable The Carlyle Group to secure a better price for its holding in
70 The acquisition is not made on the fair value of assets in this case.
71 Axelson, Jenkinson, Strömberg & Weisbach. ‘ Borrow cheap, buy high? The determinants of leverage and pricing
in buyouts.’ [2013] 68(6) The Journal of Finance 2223.
72 Femino. ‘Ex Ante Review of Leveraged Buyouts’. [2013] 123 Yale Law Journal 1830
73 www.naturesbounty.com
74 www.cartyle.com
75 Bathurst Regional Council v Local Government Financial Services Pty Ltd [2012] FCA 1200
76 Michael C Jensen. ‘Active investors, LBOs, and the privatization of bankruptcy.’[2010] 22 Journal of
applied corporate finance 77
77 Tim Jenkinson and Miguel Sousa. ‘What determines the exit decision for leveraged buyouts?’ [2015]
Journal of Banking and Finance 399.
11
the company78. This will raise the cost of investment for the KKR & Co. The benefit of the
majority control to the KKR & Co. is that it will enable the firm to exercise complete control over
Nature’s Bounty. This will allow them to make a strategic decision for the company without
anyone limiting their ability to do the same79. At the same time, the KKR & Co. has purchased
the company because it is optimistic about the future of Nature’s Bounty. This will allow the KKR
& Co. to fulfill the plans it has with the company without any hurdles from the board of
directors80.
As per the internal sources the value of the deal is about $3 billion and this value has been
calculated at ten times the value of net profit before interest, tax, depreciation, and amortization.
The KKR & Co. has named Paul Sturman as the new CEO of Nature’s Bounty81. The investment
in Nature’s Bounty will allow the KKR & Co. to increase its return from investment as the future
of the company is positive. The KKR & Co. believe that Paul Sturman will be able to effectively
lead the firm as he has more than 30 years’ experience in the field. He has spent six years,
magnificently leading Pfizer’s. Apart from this he is Trustee of the Foundation for Morristown
Medical Centre that is one of America’s top fifty hospitals and he also holds a board seat in
Tyme Inc., this is the clinical stage of a biotechnology company that is using the cellular
metabolism to develop cancer therapies that have low toxicity levels82. This Nature’s Bounty can
use his experience and connections for increasing the sales and developing better products in
the future. At the same time, the company will be able to get more contracts and increase its
sales and profitability. After the acquisition of Nature’s Bounty, the plans of the KKR & Co. for
the company includes increasing the investment in the company, this will allow Nature’s Bounty
to expand its operations. Further, the KKR & Co. will provide support managerial support to the
company that will assist the current management to perform their duties effectively. Additionally,
they can further enhance the operating ability of Nature’s Bounty by providing them special
contacts and using their influence to help them secure sales. There is high competition in the
industry and the KKR & Co. wants to continue the business of Nature’s Bounty. The company
will be able to face the competition effectively by using the help of the parent company that is
KKR & Co. This will allow Nature’s Bounty to improve its performance and maximize the profits
of the company. This will also allow the KKR & Co. to increase its return on investment83.
Acquisition of Calsonic Kansei by KKR
Additionally, the other leverage buyout by the KKR & Co. is of the Calsonic Kansei from the
Nissan Motors84. The company spent 498.3 billion yen that is $4.5 billion. The KKR & Co. made
a public announcement that it will pay 1,860 yen per share that is 28.3% premium over the
closing price of the stock. The shares of the Calsonic Kansei closed at 1,450 yen, up 9.7%.
After making a successful deal the KKR & Co. will be holding around 95.21% shares in the
Calsonic Kansei. Now the KKR & Co. holds the majority of the shares in the company including
41% of the shares previously owned by Nissan85. Further, the KKR & Co. will also have control
78 Cartyle group invests across four segments including Corporate Private Equity, Real Assets, Global
Market Strategies and Investment Strategies across different countries.
79 Puliyur Sudarsanam. ‘Exit Strategy for UK Leveraged Buyouts: Empirical Evidence on Determinants’
[2005]
80 Voting rights attached to ownership
81 www.businesswire.com
82 www.tymeinc.com
83 Investment made in acquiring the portfolio company.
84 Nissan Motors based at Japan was the parwent company of
85 Nissan Motors is a Japanese company.
12
majority control to the KKR & Co. is that it will enable the firm to exercise complete control over
Nature’s Bounty. This will allow them to make a strategic decision for the company without
anyone limiting their ability to do the same79. At the same time, the KKR & Co. has purchased
the company because it is optimistic about the future of Nature’s Bounty. This will allow the KKR
& Co. to fulfill the plans it has with the company without any hurdles from the board of
directors80.
As per the internal sources the value of the deal is about $3 billion and this value has been
calculated at ten times the value of net profit before interest, tax, depreciation, and amortization.
The KKR & Co. has named Paul Sturman as the new CEO of Nature’s Bounty81. The investment
in Nature’s Bounty will allow the KKR & Co. to increase its return from investment as the future
of the company is positive. The KKR & Co. believe that Paul Sturman will be able to effectively
lead the firm as he has more than 30 years’ experience in the field. He has spent six years,
magnificently leading Pfizer’s. Apart from this he is Trustee of the Foundation for Morristown
Medical Centre that is one of America’s top fifty hospitals and he also holds a board seat in
Tyme Inc., this is the clinical stage of a biotechnology company that is using the cellular
metabolism to develop cancer therapies that have low toxicity levels82. This Nature’s Bounty can
use his experience and connections for increasing the sales and developing better products in
the future. At the same time, the company will be able to get more contracts and increase its
sales and profitability. After the acquisition of Nature’s Bounty, the plans of the KKR & Co. for
the company includes increasing the investment in the company, this will allow Nature’s Bounty
to expand its operations. Further, the KKR & Co. will provide support managerial support to the
company that will assist the current management to perform their duties effectively. Additionally,
they can further enhance the operating ability of Nature’s Bounty by providing them special
contacts and using their influence to help them secure sales. There is high competition in the
industry and the KKR & Co. wants to continue the business of Nature’s Bounty. The company
will be able to face the competition effectively by using the help of the parent company that is
KKR & Co. This will allow Nature’s Bounty to improve its performance and maximize the profits
of the company. This will also allow the KKR & Co. to increase its return on investment83.
Acquisition of Calsonic Kansei by KKR
Additionally, the other leverage buyout by the KKR & Co. is of the Calsonic Kansei from the
Nissan Motors84. The company spent 498.3 billion yen that is $4.5 billion. The KKR & Co. made
a public announcement that it will pay 1,860 yen per share that is 28.3% premium over the
closing price of the stock. The shares of the Calsonic Kansei closed at 1,450 yen, up 9.7%.
After making a successful deal the KKR & Co. will be holding around 95.21% shares in the
Calsonic Kansei. Now the KKR & Co. holds the majority of the shares in the company including
41% of the shares previously owned by Nissan85. Further, the KKR & Co. will also have control
78 Cartyle group invests across four segments including Corporate Private Equity, Real Assets, Global
Market Strategies and Investment Strategies across different countries.
79 Puliyur Sudarsanam. ‘Exit Strategy for UK Leveraged Buyouts: Empirical Evidence on Determinants’
[2005]
80 Voting rights attached to ownership
81 www.businesswire.com
82 www.tymeinc.com
83 Investment made in acquiring the portfolio company.
84 Nissan Motors based at Japan was the parwent company of
85 Nissan Motors is a Japanese company.
12
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