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The Role of Fees and Gearing in Leveraged Buyouts

In: Private Equity Finance

Author

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  • Jamie Morgan

Abstract

In Chapters 1–4, I looked at how liquidity expands and how this affected the development and scale of PEF. In this chapter I look at the matter from the opposite point of view: what aspects of PEF cause it to expand to exploit all available liquidity? The basic answer to this question is that the fee structure of PEF funds and the range of available strategies open to PEF firms in undertaking an LBO and then managing an acquisition create motives to do so. In order to generate high returns to the fund that justify some fixed fees and enable the firm to earn the key performance based fee — carried interest — the PEF firm has a motive to increase the levels of debt they use and to focus on larger LBOs, creating more leverage.

Suggested Citation

  • Jamie Morgan, 2009. "The Role of Fees and Gearing in Leveraged Buyouts," Palgrave Macmillan Books, in: Private Equity Finance, chapter 5, pages 136-152, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-59487-6_6
    DOI: 10.1057/9780230594876_6
    as

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