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 | Warnings fail to dim LBO dazzle
Buyouts in the US have tapped virtually every source of funds in the investment universe--except government funds--with high returns from junk bonds and equity participation acting as the magnet.
Commercial and investment banks, insurance companies, state, municipal and corporate pension funds, university endowments and individuals have all poured funds into the burgeoning industry, and there is no sign that demand for new investment opportunities is slackening.
"Any major pool of capital you can think of is investing in buyouts,' said Joseph Rice, president of the buyout specialist firm Clayton & Dubilier, one of the many around that concentrates on this area.
Commercial banks are usually the main source of senior debt, insurance companies provide much of the subordinated debt and all types of investors supply equity capital. A typical package consists of 10% equity, 20-30% subordinated debt (including junk bonds) and the remainder is senior debt. It is common for participants to be involved in both the debt and equity layers of a deal.