A Case Study On The Leveraged Buyout In The Ninestar's Acquisition Of Lexmark

In recent years,with the adjustment of the economic structure and industrial upgrading,more and more enterprises are seeking rapid growth through mergers and acquisitions.The active participation of various financial institutions such as private equity funds has further promoted the M&A process of Chinese companies.It also provided markets for leveraged buyouts.As one of the important market players,private enterprises have surpassed state-owned enterprises for the first time in 2016 and played an important role in the M&A market.However,private enterprises with small volume often face the financing difficulties when implementing mergers and acquisitions of large-scale enterprises,leveraged purchases just provide a way for them.Leveraged buyouts are increasingly being used in private companies' aquisition.Therefore,how to make private enterprises obtain sufficient funds to successfully complete the acquisitions has great significance.The paper selects the typical leveraged buyout case of China in 2016—Ninestar acquires Lexmark International as the research object.On the basis of research on relevant theories,the conditions of the use of leveraged buyouts and financing methods,it analyzes the reasons why Ninestar chooses to adopt the leveraged buyout method,and how to successfully complete the acquisition with less self-owned funds.In addition,it summed up the key factors for the success,aiming to provide some experience for other similar private enterprises to apply leveraged buyouts.On the other hand,it analyzed the debt risk,control risk and exchange rate risk in the case and make relevant suggestions to further optimize the market environment and promote better development of leveraged buyouts.The paper concludes that: the key to the success of Ninestar's leveraged acquisitions lies in the clever design of the anti-triangular transaction structure which form a risk isolation mechanism,and the diversified financing strategy which used M&A funds and issued private equity exchangeable bonds.However,although Ninestar successfully completed the acquisition,its capital market performance was poor and the debt risk was more prominent due to its large use of financial leverage.Therefore,we should comprehensively consider all factors to rationally design the transaction structure,pay attention to the importance of intermediaries and optimize financing strategies,etc.In addition,we should also improve the risk control system and enhance its credit rating,focus on the cash flow management and business integration,standardize information disclosure and so on.Different from the previous studies,the paper selects the private enterprise Ninestar's leveraged acquisition case,because it is relatively small in scale and faces financing difficulties.It is like a snake swallow an elephant.The case was successful through innovative arrangements in terms of transaction structure and financing methods which can provide some inspirations for others.In addition,Ninestar's innovative application of privately-receivable exchange bonds is not yet studied before.So it can promote the better application of leveraged buyouts to solve the financing problems.