Essay About Strategic Buyers And Global Market

Towards a Global Market for Lbo
TRANSITIONING
TOWARD A GLOBAL LBO MARKET
By Armanno Andrea Pappalardo
The U.S. and European Union LBO markets traditionally have functioned in very
different ways. Because of sophisticated debt and equity markets, American financial
buyers have pursued investment strategies based on financing structures with multiple
layers of securities and arbitrages between private and public markets. The European
LBO market, by contrast, long has been regarded as an area of promise land but too
immature to be really interesting, as demonstrated by the preponderance of small size
deals.
However, according to the results of extensive research into trends, deal flows,
and views of LBO professionals in both geographical areas, several developments have
changed the picture. The U.S. LBO market has evolved from a “deal” business to an
“investment” business with partnerships of business and financial professionals becoming
increasingly critical. In Europe, much larger deals have been taking place as financial
buyers and capital markets have become more experienced and sophisticated.
Changes in the U.S. have been driven by an increased number of competitors,
importance of auctions of subsidiaries and divisions by public companies, and the
competition offered by strategic buyers. Together, they made the American LBO market
more difficult.
In the 1980s, capital and financial skills were the key success factors for private
equity firms, especially in larger deals. But in the 1990s, a number of additional factors
are needed to gain competitive advantage, including the capabilities to:
·escape the “auction trap” and create a flow of proprietary deals
·run the decision-making process at portfolio companies more effectively than
competitors,
·add value through acting as a sounding board for the management of the investee
companies and assisting actively in the definition of growth strategies.
To gain a competitive edge successful PE firms