Kmart, Sears and ESL: How a Hedge Fund Became one of the World’s Largest Retailers
1. LBO funds have been notably active in the market for mergers and acquisitions (M&A) in recent years. The line between some types of hedge funds and LBO funds blurred in the last few years, but most hedge fund strategies remained quite distinct from the LBO investing model. For many years, hedge funds active in the distressed arena tried to buy defaulted or near-default bonds and then resell them weeks or months later at a profit. The blurring of the line between LBO and hedge funds began when hedge funds specializing in bankruptcy started hanging onto their distressed investments through the entire restructuring process, leaving them with substantial, and sometimes controlling, stakes in companies when upon emergence from bankruptcy bondholders’ claims are transformed into equity in the new entity.
2. Financial buyers are principally private equity funds and hedge funds. A financial buyer is a buyer that purchases a business solely interested in the return they can achieve by buying a business. Financial buyers are interested in the cash flow generated by a business and the future exit opportunities from the business. On the other hand strategic buyers are interested in how a company’s fit into their own long-term business plans. Their interest in acquiring a company has to do with synergies they can extract with their current business. Other reasons could be eliminating competition, or enhancing some of its own key weaknesses.
Strategic buyers are companies buying other companies in the same industry. Strategic Buyers should theoretically be able to pay a higher price for distressed or bankrupt assets because of the synergies that would come from merging them with similar operations. Since most companies in the same industry and experienced the same business cycle, however, the timing of a rivals bankruptcy often found the survivors in a weak position and unable or unwilling to commit cash for an acquisition. This timing mismatch encourages
2. Financial buyers are principally private equity funds and hedge funds. A financial buyer is a buyer that purchases a business solely interested in the return they can achieve by buying a business. Financial buyers are interested in the cash flow generated by a business and the future exit opportunities from the business. On the other hand strategic buyers are interested in how a company’s fit into their own long-term business plans. Their interest in acquiring a company has to do with synergies they can extract with their current business. Other reasons could be eliminating competition, or enhancing some of its own key weaknesses.
Strategic buyers are companies buying other companies in the same industry. Strategic Buyers should theoretically be able to pay a higher price for distressed or bankrupt assets because of the synergies that would come from merging them with similar operations. Since most companies in the same industry and experienced the same business cycle, however, the timing of a rivals bankruptcy often found the survivors in a weak position and unable or unwilling to commit cash for an acquisition. This timing mismatch encourages