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Capital Markets

The Lucrative World of Management Buyouts: 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 | Warnings fail to dim LBO dazzle

Leveraged buyouts have become an established feature of American corporate life. In the first nine months of this year, more than $21 billion of LBOs (about 18% of all mergers and acquisitions) were completed in the US, according to one estimate. This figure compares with less than $1 billion of LBOs in 1980.

During that six-year period, a vast machinery has emerged to generate LBOs, often based on the idea that the corporate whole is worth less than the sum of its parts. Playing a prominent part in it all are ambitious managements eager to run their own show; cash-hungry companies looking to spin off divisions considered peripheral; midsize banks and other financial institutions seeking better returns on loans and investments; and large banks, securities houses and LBO specialist firms hunting for deals, fees and equity. Across the spectrum, the main question is not whether the LBO business will grow--but by how much and how fast.

An LBO is an acquisition financed with a significant amount of debt (leverage), in which the purchaser relies on the assets or cash flow of the acquired business to service the debt.

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