The paper 'Leverage Buyout" is a perfect example of finance and accounting coursework. Restructuring is the latest buzzword in the business arena companies strive to attain a competitive advantage to maximize their profits in the saturated market (Tetřevová , 2007). The rapidly changing local and global business environment is also driving companies to resort to restructuring in order to change the way business is run. Restructuring, therefore, involves new and unique ways of running a business by shunning the old method. It calls for organizations to transform their organizational structure and system, organizational culture, organizational design, and leadership styles.
As a result, successful restructuring requires strategic management to optimize the benefits of restructuring and to have a competitive edge in the market. Leverage buyout is some of the common types of a corporate restructuring that is common in the modern world. It is a type of restructuring where investors and company management buy a company through the use of equity and debts (Eckbo and Thorburn, 2008). The most common type of leverage buyout is known as management buyout where business management or top executive agrees to buy a significant part of the company from the existing shareholders.
Once the management or investors have acquired the company, the acquired firm goes private to enable its restructuring to increase its profitability. Therefore, the main reason for leverage buyout is to restructure the company to increase its performance and profitability, which will lead to profit optimization (Tripathi, 2012). The main aim of a business is to maximize the profit, which makes it the primary reason why a company can be restructured through leverage buyout. Secondly, restructuring is done to enhance the competency of a firm by establishing effective and proactive leadership and empower employees to improve their performance. In addition, leverage buyout is done by companies to reduce the cost of running an enterprise by downsizing the number of employees both at the work and managerial level (Tripathi, 2012).
Cost reduction is common when a company is facing financial challenges and cannot afford to pay the existing workforce. Leverage buyout is also conducted to enhance the quality of goods or services. Besides, another reason why a firm may opt for leverage buyout is to minimize the risks by putting it effective and efficient management.
Therefore, the overall reason for leverage buyout is to attain a high rate of return. Leverage buyout, like any type of corporate of restructuring, has many benefits. One of the benefits of leverage buyout is that it transforms the management, as the poorly managed business undergoes reformation when it is changed to a private firm (Kaplan and Strö mberg, 2008). Many companies take corporate structures through the modification or replacement of the management, executive, and the staff.
Companies also do away with unnecessary departments or sectors that are not beneficial and may add the cost of operations. Business structure can also be changed by eliminating excessive expenditures, especially those that do not add value to the firm. The transformation of the management after restructuring helps in promoting the interest of investors and the interest of the company. Therefore, a company must engage in strategic management if it wants to achieve a high return after restructuring. Leverage buyout alone is not enough, but a company must evaluate its resources and internal and external business environment to come up with effective strategies that can significantly transform the business towards achieving its objectives (Kaplan and Strö mberg, 2008).