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The Return of the Recap: Achieving Private Equity Benefits as a Public Company

The Return of the Recap: Achieving Private Equity Benefits as a Public Company Can Public Companies Replicate the Private Equity Model? The private equity model brings together a multitude of forces to generate substantial value. High leverage in LBOs lowers the cost of capital, provides cost-efficient financing, and promotes financial discipline; high equity concentration encourages active oversight; the compensation structure aligns incentives; sponsor involvement brings access to management expertise; private ownership facilitates a longer term focus; and a portfolio approach to the business creates a focus on optimizing the strategy and timing for an exit. Most important, an LBO creates an incentive for all involved parties—management, sponsors, and employees—to think like owners. The resulting changes have cleared a powerful path to create value that has led many public companies to go private through an LBO. * We want to begin by acknowledging the extensive contribution to this article of Marc Zenner, who is no longer with Citigroup. We also thank Gent Kadare, Michael Lavelle, Robert Leonard, Rupert Mitchell, Matt Morris, Scott Miller, William Ortner, Luigi Pigorini, Vicky Polyakov, Alan Rifkin, Steve Victorin, Olga Vovk, and Eric Williams for their helpful An LBO is not the right strategy for every company. For some companies, the debt levels incurred in an LBO may http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

The Return of the Recap: Achieving Private Equity Benefits as a Public Company

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Publisher
Wiley
Copyright
Copyright © 2007 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.2007.00144.x
Publisher site
See Article on Publisher Site

Abstract

Can Public Companies Replicate the Private Equity Model? The private equity model brings together a multitude of forces to generate substantial value. High leverage in LBOs lowers the cost of capital, provides cost-efficient financing, and promotes financial discipline; high equity concentration encourages active oversight; the compensation structure aligns incentives; sponsor involvement brings access to management expertise; private ownership facilitates a longer term focus; and a portfolio approach to the business creates a focus on optimizing the strategy and timing for an exit. Most important, an LBO creates an incentive for all involved parties—management, sponsors, and employees—to think like owners. The resulting changes have cleared a powerful path to create value that has led many public companies to go private through an LBO. * We want to begin by acknowledging the extensive contribution to this article of Marc Zenner, who is no longer with Citigroup. We also thank Gent Kadare, Michael Lavelle, Robert Leonard, Rupert Mitchell, Matt Morris, Scott Miller, William Ortner, Luigi Pigorini, Vicky Polyakov, Alan Rifkin, Steve Victorin, Olga Vovk, and Eric Williams for their helpful An LBO is not the right strategy for every company. For some companies, the debt levels incurred in an LBO may

Journal

Journal of Applied Corporate Finance – Wiley

Published: Jun 1, 2007

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