Private equity: the law and the legal information professional.

Publication: Legal Information Alert

Publication Date: 01-JAN-08

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COPYRIGHT 2008 Alert Publications, Inc.

In spring 2007, at the height of the private equity leveraged buyout boom, I began to write several articles for the Business Information Alert to explain the basic facts about deals and about this rather arcane area of corporate finance. Private equity (PE) was big news. Many companies with household names were being taken into private equity ownership from the stock exchanges in both North America and the U.K. There were some pretty startling headlines on the front pages of the mainstream press, not just in the inside pages of the Wall Street Journal and the Financial Times.

Background

The financial instruments being used were perhaps the most notorious of all those used in the private equity deals: the leveraged buyout or LBO. This type of buyout (buyouts are the main type of PE funding) is where substantial amounts of debt backing from commercial and investment banks were required by the private equity financiers to take these companies into private ownership from the stock exchanges where they were listed in a kind of acquisition. Echoes of the last LBO boom in the late 1980s abounded with warnings about how badly that ended. Tales of the Federal Reserve rescue of the savings and loans, the demise of the investment bank, Drexel Burnham Lambert and their architect of the deals, Michael Milken, were debated in the press again. The story of the most outrageous LBO of all time, the takeover of RJR Nabisco, immortalized forever in the book and film Barbarians at the Gate, was revisited. Sure enough, history has repeated itself; in the latest LBO boom of 2006-2007, it has been the banking credit crisis that began in August 2007 which has brought the stream of deals to a complete stop. Many of the deals that had been arranged in early 2007 are in trouble and the funding cannot be finalized.

Private equity is an...

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