Funds galore for LBO prospects | Tax snags of a global buyout | Europe is the next frontier | Some examples of recent MBOs | UK buyouts grow in complexity | Managers who succeed as bosses | Spawn of an era: specialist firms
Danger lies ahead for the profusion of leveraged buyouts engineered during the 1980s by American companies and their bankers. During the past four years, conditions have been absolutely ideal for LBOs, with borrowing costs declining steadily and equity prices climbing to new peaks. But conditions won't stay ideal forever. Sooner or later, US interest rates will almost certainly rise again, stock prices will stop going up and a recession will undermine corporate cash flows. When the tide turns, capital gains opportunities will vanish. Worse still, thinly capitalised buyouts built on heavy debt leverage and high-interest junk bonds will be stretched to the limit, and perhaps beyond.
