The following example illustrates some of the steps and considerations involved in typical LBOs. Suppose that, as part of a corporate restructuring, Universal Industries, Inc., has recently decided to sell its Gray Manufacturing Division, a manufacturer of industrial products. The Gray division’s top management, together with several private investors, are considering buying Gray and operating it as a separate company.As is fairly typical of LBO candidates, Gray is in a mature industry and its products have a low probability of becoming obsolete. In addition, Gray’s fixed assets have a present market value greater than their book value.
Diversified Industries’ Expected EPS Growth with and Without the High-Tech Products Acquisition
The Gray division’s financial statements listed in show that the division presently has an annual pretax loss of $1 million, and therefore its return on stockholders’ equity is negative. The Gray management group intends to return Gray to profitability by various cost-cutting and other measures. Gray’s parent company, Universal Industries, could also have initiated cost-cutting measures to attempt to return Gray to profitability. However, partly because of Universal’s new corporate strategy to get out of the industrial products business, it has chosen instead to sell Gray. Following negotiations between the Gray management group and Universal Industries, the management group agreed to purchase all of the assets of the Gray division for $30 million. The Gray management group plans to take the following steps to complete the LBO transaction.
This example illustrates many of the steps a buyer usually takes in an LBO.
Financial Management Related Interview Questions
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Financial Management Tutorial
The Role And Objective Of Financial Management
The Domestic And International Financial Marketplace
Evaluation Of Financial Performance
Financial Planning And Forecasting
The Time Value Of Money
Risk And Return On At&t Common Stock
Fixed-income Securities: Characteristics And Valuation
Common Stock: Characteristics,valuation, And Issuance
Capital Budgeting And Cash Flow Analysis
Capital Budgeting: Decision Criteria And Real Option Considerations
Capital Budgeting And Risk
The Cost Of Capital
Capital Structure Concepts
Capital Structure Management In Practice
Working Capital Management
The Management Of Cash And Marketable Securities
Management Of Accounts Receivable And Inventories
Lease And Intermediate-term Financing
Financing With Derivatives
Internationan Financial Management
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