The financial sector companies involved are first in line if it goes bad. They don't care if the company survives as long as it has enough assets to sell off to get paid.
The company would have to be severely undervalued (or perhaps perceived to be severely mismanaged) for this to be the case, which seems strange to me. Then again, the typical PE strategies (loading the company with debt and cutting investments in future products & services) also seem like very bad business strategies. I really don't understand why anyone would loan money for a buyout, or buy a (share of the) company which had recently been through it.
Leveraged buy-outs (LBOs) must be profitable for the investors backing them (or else I'm sure they wouldn't), but I agree that it is very strange, and I really don't understand how this could be the case.
I dont understand why people are so confused and skeptical about this.
Its basically like a mortgage. Buy a house and use it as collateral for the loan
They are absolutely profitable for the investors backing the buyout, but they are generally detrimental to everyone else in the equation - all the existing shareholders, whose previous-profitable investment is now a debt-ridden mess, plus all the employees who are about to be laid off from the now-sinking-under-debt company
Isn't idea of leveraged buyout well buyout? And almost always with premium. That is existing shareholders get paid more than current market price of their holdings. So they should also be winners and able to redeploy the capital they got.
Premiums on buyouts are kind of interesting: the buyout price was a 25% premium on the day the news was announced (and a 17% premium over the all-time high)... but of course the market immediately priced that in, so for the past few weeks it's been just a 5% premium over where EA stock is actually trading.
