564 20 Acquisition Finance
20.5 Debt
20.5.1 General Remarks
Leveraged buyouts bring many benefits to the acquirer. A high leverage ex ante
can increase return enormously, if the debts will be bourne by the target ex post
after the completion of the acquisition. The acquirer can decide on debt funding
without turning to shareholders, and it will not change the ownership structure of
the company (for the benefits of debt, see section 4.1). There are also other bene-
fits (see section 10.5 on refinancing).
Acquirers typically increase leverage to increase risk and return when the per-
ceived risk is low. For example, few US companies relied on debt as a significant
source of acquisition funding after the Second World War, because the Great De-
pression was still a very recent memory, and the perceived risk inherent in high
leverage was still high.
Following a wave of conglomerate building, many listed companies were trading at a dis-
count to net asset value. New firms saw an opportunity to profit from inefficient and under-
valued corporate assets. In the late 1970s and early 1980s, many leveraged buyouts were
motivated by profits available from buying entire companies, breaking them up and selling
off the pieces.
Higher leverage as a trend. One of the main trends in the market for leveraged ac-
quisition finance has involved the creation of new practices and instruments by
which the overall size of debt can be increased. This increased the price of com-
panies before the financial crisis that began in 2007, and will contribute to higher
prices after the crisis.
First, many acquirers want to ensure that responsibility for the repayment of the
debt is bourne by the target. The lower risk exposure of acquirers has given an in-
centive to increase the size of debt raised from banks and reduce the amount of
equity invested by the acquirers themselves. The heavy indebtedness of the target
company is associated with increased risks.
Second, banks have learnt to sell the debt or credit risk to other financial insti-
tutions. Where banks do not keep the original credit exposure in their books, debt
sizes can be expected to rise.
Third, the entry of new types of debt investors (such as hedge funds, insurance
companies, mutual funds) and new kinds of debt instruments (CDOs and CLOs)
has increased the availability of debt funding for leveraged acquisition transactions.
sten von Aktionären sollen künftig nur noch davon abhängig sein, dass die Gesellschaft
über einen vollwertigen Rückzahlungs- oder Rückgriffsanspruch verfügt. Bliebe nun
Paragraph 71a AktG unverändert, so erlangte das Verbot der finanziellen Unterstützung- anders als bislang - einen eigenständigen Charakter. Denn es würde gezielt die
Mitwirkung der Zielgesellschaft an einer fremdfinanzierten Übernahme (Leveraged
Buyout) verbieten, obschon entsprechende Unterstützungen finanzieller Art zugunsten
„gewöhnlicher“ Aktionäre künftig durchaus erlaubt wären.”