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Leveraged Buyouts and Recapitalizations

In: Financial Analysis of Mergers and Acquisitions

Author

Listed:
  • Eli Amir

    (Tel Aviv University)

  • Marco Ghitti

    (SKEMA Business School)

Abstract

In a corporate reorganization, a company changes its internal or external structure to improve efficiency or to increase revenues and income. Corporate reorganizations often result in a change of control. In this chapter, we review two types of corporate reorganizations: Leveraged Buyouts (LBOs) and Recapitalizations (RECAPs). Many times, these transactions are characterized by high levels of debt, secured by the assets and cash flows of the acquired company. These situations raise questions about whether the assets and liabilities of the acquired company should retain their historical bases, or should they change the accounting basis to fair value. In the first part of this chapter, we discuss LBOs and RECAPs. In the second part, we introduce a new accounting procedure called pushdown accounting. According to this procedure, following a change-in-control event, an acquired company that issues separate financial statements, may elect to present its assets and liabilities, including goodwill, at fair valued at the time of acquisition.

Suggested Citation

  • Eli Amir & Marco Ghitti, 2020. "Leveraged Buyouts and Recapitalizations," Springer Books, in: Financial Analysis of Mergers and Acquisitions, chapter 0, pages 121-139, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-61769-1_7
    DOI: 10.1007/978-3-030-61769-1_7
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