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The Potential Contributions of Leveraged Buyout (LBO) to the Development and Integration of African Countries

Leveraged buyouts (LBOs) are a financial arrangement that allows the acquisition of a company by taking on debt. To implement the LBO, a passive holding company must first be created whose sole corporate purpose is to hold equity stakes in operational SMEs. An active holding company, on the other hand, manages a portfolio of equity stakes, but also actively participates in setting group policy and overseeing its subsidiaries. LBOs stand for Leveraged Buyouts, meaning a buyout with leverage. This acquisition is made through a bank loan or by issuing bonds. At the end of the bond term, the acquired company is generally listed on the stock exchange in order to generate capital gains for all investors. Ultimately, the holding company did not commit its own funds and managed to pay off the bank financing thanks to dividends. Indeed, to ensure the success of an LBO operation, it is essential to audit the target company and verify its ability to generate profits to distribute dividends that will allow the holding company to pay off its debts. LBOs experienced remarkable growth in the United States in the early 1970s, in Europe in the 1980s, and in Africa since the 2000s. These operations, which can take various forms (leveraged buyouts, debt-financed acquisitions, acquisition through borrowing, takeover through borrowing), are financial techniques for buying companies that allow investors to acquire companies while minimizing acquisition costs and maximizing their financial returns. This article, through a simulation process, tries to show how LBOs can boost and stimulate the development and integration of African countries. These operations are becoming increasingly useful or even essential for African companies whose size has proven to be a distorting factor in their development, not to mention the consequences of the recent emergence of COVID-19. Ultimately, we propose LBOs as a real panacea to strengthen the growth, development and pooling of forces of African companies.

Leverage Buy-out, Leverage Effect, Holding Company, Mezzanine Loan, Senior Loan

APA Style

Assoumou Menye Oscar, Djefedie Stéphane Contard. (2023). The Potential Contributions of Leveraged Buyout (LBO) to the Development and Integration of African Countries. Journal of Finance and Accounting, 11(4), 124-133. https://doi.org/10.11648/j.jfa.20231104.17

ACS Style

Assoumou Menye Oscar; Djefedie Stéphane Contard. The Potential Contributions of Leveraged Buyout (LBO) to the Development and Integration of African Countries. J. Finance Account. 2023, 11(4), 124-133. doi: 10.11648/j.jfa.20231104.17

AMA Style

Assoumou Menye Oscar, Djefedie Stéphane Contard. The Potential Contributions of Leveraged Buyout (LBO) to the Development and Integration of African Countries. J Finance Account. 2023;11(4):124-133. doi: 10.11648/j.jfa.20231104.17

Copyright © 2023 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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