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Acquisition Finance : Risk assessment and risk division between the parties in Leveraged Buyout transactions

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Title: Acquisition Finance : Risk assessment and risk division between the parties in Leveraged Buyout transactions
Author(s): Rantakallio, Jenna
Contributor: University of Helsinki, Faculty of Law
Discipline: International law
Language: English
Acceptance year: 2014
The purpose of the Thesis is to identify the main risks in leveraged buyout process and analyze different risk assessment between the parties. In addition, the paper concentrates on comparison between UK and US common law systems and Finnish civil law systems where due to different jurisdictional characteristics treatment of LBO transactions is different. The emphasis is also put on analysis from the perspective of legislation and court practice what needs to be taken into account in conducting successful LBO transaction. As LBO transactions have their roots in the US system and it is more commonly used in US based acquisitions, more weight is given on the analysis from the perspective of US legislation. In addition, due to confidential nature of LBO transactions and as majority of agreements restrict that claims are solved in arbitration there is lack of available case law. This is why I am concentrating more on the US system and case law that is publicly accessible. Furthermore, this research also concentrates on comparison and identifying differences and similarities between different common law systems and Scandinavian civil law system. Scandinavian system is analyzed from the Finnish perspective since there has been hot debate related to Finnish more restrictive approach to legislate LBO transactions. Finally, it is also interesting to take into comparison other common law system, UK where national legislation varies from the US system in great parts. The paper brings out the main characteristics in these systems and tendencies to manage risks from the perspective of national laws and legal practice. Risks in the LBO process range from choosing the right parties, risks related to the negotiation process and different contractual risks. In addition, there are issues related to different national and EU law provisions that parties need to take into account. In this research is covered step by step the whole acquisition transaction and analysis on different risk assessment tools and how parties seek to divide and mitigate their risks. In addition, the perspective of academic writers is taken into account in the analysis to see what kind of risks and risk division is seen as ideal in practice. Finally, relevant case law is analyzed from the perspective of which kind of situations may lead to unsuccessful deal and how these conflict situations are solved in practice. Leverage and more specifically the debt level have an essential role in LBO transactions. The whole transaction process has various steps from choosing the right target company and parties to the transaction, negotiating the deal and loan agreements and finally completion of the deal. The whole process is easily fractured and needs careful planning with involvement of experienced experts to be completed successfully. Successful performance of the deal means beneficial deal from the perspective of all parties that the seller gains its profits and that creditors are paid in accordance with the loan agreements but also that there are no transaction costs or inconvenience from arising disputes. Therefore, the Thesis seeks to answer which kinds of risks this process includes and how these risks should be divided and managed between the parties.

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