Leveraged Buyouts: Notable Cases In The Italian Financial Distress Landscape

This master thesis is aimed at investigating a notable financial technique in M&A operations, i.e. Leveraged Buyout. This kind of deals caught on in the USA in the 1980’s, where they gained a bad reputation, due to the excessive debt used to finance the acquisition and the anecdotal greed that guided their sponsors, who were frequently more interested in asset stripping than in value creation for the overall entity. In recent years, the new legislation introduced to regulate these transactions and the consolidation of a less risky common modus operandi have allowed a conduct aimed at improving the acquired companies and reselling them for a profit, seeking, when possible, a win-win exit among all stakeholders, including employees, existing shareholders and creditors. However, the highly debt-financed nature of these deals still puts their business continuity at risk in some cases. This research identified 160 Italian LBO targets acquired and still participated by reputed Private Equity firms. Through an analytical selection process, four cases were brought to light, where the ongoing operational capacity appears uncertain. A clinical analysis of each of these companies was conducted to identify the causes of financial distress and potential ways out. As a final result, it can be asserted that the incompatibility of the level of debt contracted with (albeit not expected ex ante) de facto limited profitability and cash generation stands as a common and determining factor for distress.