Thursday, January 10, 2008


Guambat doesn't know if BO still means what it used to mean or if anyone is around who still remembers what it used to mean. But a couple of posts in WSJ's Deal Journal blog reminded him of that old phrase. First, there is the one about "What Wall Street Banks Learned From Broken LBOs". This one suggests that the buy out boys will now have more chaste in their haste than taste in their chase.
In their haste to cash in on the roaring buyout market the last few years, all parties concerned got a little sloppy.

Perhaps most striking is the merger agreements themselves. Highly detailed and clear-cut documents in all outward appearance, many of them turned out to be downright imprecise. That lack of precision enabled the parties to gloss over fine points that could have slowed their rush to the bank. Now, it has been coming back to haunt them.

The post didn't point out, but Guambat will, exhibit x: The Genesco/Finish Line deal.

Then there is the one about "
Taking the ‘L’ Out of the LBO". Here, they tell about how, to get the deals closed, party hardy buy out boys are actually having to put their own money where their mouths are. For instance, to grease the wheels on this one,
KRG Capital Partners, for instance, acquired lubricant distributor Tri-County Petroleum, for an undisclosed amount, by bridging the entire transaction with equity capital.

This means firms will, to some extent, sacrifice returns in exchange for the certainty of closing. As firms put in more equity, they use less debt, which is the juice for higher returns.

Of course, this isn’t a favored tactic of buyout shops... the tactic was a “by-product” of the credit crunch, and ... they have used more equity than they normally would since the debt market seized up.

Yep, the real buzz of a buy out is to use someone else's money. Yeah boy, that's real buzziness.

Hell, even a Guambat knows that an LBO without the 'L' is plain old BO (in case any of youse was thinkin' this pic is about a bunch of guys sticking they eLBOws out).


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