Mergers, Acquisitions, and Corporate Restructurings, Fourth Edition

Chapter 8. Trends in the Financing of Takeovers and Going Private Transactions Including Hedge Funds and Private Equity Funds

This chapter features a combination of four loosely related topics. The first concerns how the mix of cash and securities used to finance takeovers has varied over time. An acquiring corporation that is making an offer for another firm has to decide on the mix of cash, debt, and equity that will be used to purchase the target. This is not a unilateral decision, as the total compensation value and mix must be one that the target and its shareholders will accept. While cash and debt seem clearly different, what is designated cash may really be debt where cash was borrowed to finance takeovers. We will see the proportion of cash, debt, and equity used in takeovers has changed over time and there are various factors that determine this mix. In this chapter we will also explore some recent trends that have taken place. For example, we will see how this compensation mix differs internationally.

In addition to the more standard discussion of the mix of various components of compensation used in takeovers, we also will cover some important recent trends related to the financing of M&As. One is the growth of the private equity market. This market has grown internationally and has become a major factor in the M&A business. Private equity firms have often combined together to finance multibillion-dollar takeovers. In the 2000s, these firms have been able to attract large ...