LBO (Leveraged Buy Out), a game of greed or the intelligence of the CEO

LBO (Leveraged Buy Out), a game of greed or the intelligence of the CEO

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This is another interesting topic, but the Thai information is quite confusing with the topic of LBO (Leveraged Buy Out), borrowing money for business acquisition!

That is, companies do not want to use their profits to acquire businesses that they think have potential because it may cause the company to face a lack of liquidity or want to keep the accounting figures looking good. Therefore, LBO helps businesses or companies to borrow money from various sources of funds, whether it is debentures, borrowing money from banks, government bonds or other methods that can raise funds from those who trust the company to use their money to acquire businesses that are expected to make a profit and will receive returns in the form of interest or other forms of returns.

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After the company receives the money from the loan, it will use this money to buy businesses that they think are good businesses that still have a future but lack liquidity in many factors, such as finance, technology or management, etc. and then turn the business around to be great again, with a lot of profit, and can also return the interest to the borrower in full and create an image for the company that it has acquired.

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It's not as beautiful as you think. Because sometimes life fights back!

There are always two sides to a coin. If you don't survive, you fall. If you don't succeed to the max, you fail miserably. It can even lead to some companies going bankrupt.

Let's take a look at some examples of successful and unsuccessful LBOs!

(Survived): Blackstone Group acquired shares of Hilton Hotel for 26 billion US dollars by borrowing money from financial institutions. Hilton Hotel often has problems with people management and employee service, which often leads to customers complaining and making repeat visits very rare. When Blackstone acquired the business, they worked like lightning, completely restructuring the management and administration, focusing on cutting out unnecessary services, such as serving food in rooms because it's not as delicious as eating in the restaurant, or having employees pay attention to service by focusing on treating customers as 'family members'. As a result, when both management and customers returned to stay, the company was listed on the stock exchange in 2013. This made the deal with Hilton the most profitable private equity investment deal, generating 12 billion US dollars from buying shares by borrowing money from financial institutions. Many analysts believe it was the best leveraged buyout ever.

(Fall): KKR, Bain Capital and Vornado Realty Trust bought the largest toy retailer, Toys "R" Us, for $6.6 billion in 2005. The private equity firms hoped to transform their operations and compete in a changing retail environment. However, the company ultimately failed, as the massive debt from the LBO limited Toys "R" Us' ability to invest in store expansion, e-commerce capabilities and overall customer experience. With increased competition from Amazon and Walmart, Toys "R" Us was unable to move forward due to its heavy debt burden. Toys "R" Us filed for bankruptcy in 2017 and later closed all of its U.S. stores, leaving the private equity firm with huge losses.

*Note: All of the above sentences are copyrighted. If anyone finds that they have copied similar text, either directly or indirectly, or if some of the text has been altered, the company is not responsible for any similarity. The company will take legal action according to the Thai Civil and Commercial Code.*

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