As we all know that by this year all the IIM's has decided to conduct their entrance exam that is CAT through online,so did you think that is it a good news for the students who are preparing for CAT or is it a heart breaking news for them.??????
According to me it will act as a disaster for them !!!!!!
as i had also given the CAT paper so i think that it will be a kind of impossible work for the department to conduct the paper online becoz there are lakhs of student who are sitting for CAT every year and it will be a big task for them to provide that much of PC for each candidate in every center.
Also it will be a very hard as well as time consuming task for the students too to see the questions again and again on computer and right figures on their rough sheet to further solve them.And they will face lot of problems in the sections like data interpretation and quantitative analysis becoz in these sections students have to look again and again on the figures as well as on the graphs which will consume their lot of time,and hence it can result in attempting less questions.
Sunday, May 10, 2009
Thursday, May 7, 2009
Its too early 2 make any prediction
Did u think that the bearish phase is over? OR
The world economy is on the right track??????
If u think so,than i think it is too early to make such prediction becoz stil there are many things which are not on the right track and without which the economy of the world cannot be improved.Like the US GDP fell by more than 6% in the present quater,China's export have fallen by a quater but less than Japan's 49%.Also the fall in GDP of OECD's is over 5%. The world bank has also increased its estimates of the fall in world's GDP in 2009 to 3.9%.
But still there are many experts as well as the macro indicators coming from various economies give the impression that the worst of economic downturn is over and the bear is behind us.
Conclusion:
Therefore i think that it will be too early to make any prediction about the future because as every bear experience a series of big rallies followed by corrections before market decisively move into a bull phase and this process can take over 24 months.Also unless and untill the factors mentioned above are not on the right track,the world economy cannot come out of the bearish phase.And all the nations have to come forward and take necessary steps to bring the economy on the right track.
Tuesday, May 5, 2009
Leveraged buyouts — Forcing change in mature business
THE 1950s and the 1960s witnessed leveraged transactions of privately held small-to-medium companies and the leveraged buyout (LBO) activity tapered off in the late 1960s. However, interest in LBOs re-emerged in the late 1980s when conglomerates that had amassed large portfolio businesses in the 1960s and 1970s began to divest many of their holdings. The transactions were often financed by leveraged buyouts.
As per international buyout practices, a target company's assets serve as security for the loans taken by the acquiring firm. The latter repays the loans out of the cash flow of the acquired company, its profits or by selling its assets. Globally, many leveraged buyouts have been financed through junk bonds. This is not the practice in India.
In the absence of norms governing M&A financing, banks have gone in for asset financing. Deutsche Bank, for instance, part-financed the Tatas' acquisition of a 25 per cent government holding in Videsh Sanchar Nigam Ltd in February. The foreign bank undertook the buyout deal by placing debt instruments with mutual funds and foreign institutional investors. The Tatas raised the required funds by leveraging their own balance-sheet.
However, public sector banks have largely avoided this kind of funding. Foreign banks, which have the expertise and the experience, have taken the lead here. The Government has ruled that MNCs will have to bring in funds from abroad rather than raise money from local banks for acquisitions.
There are three factors generally considered essential for a successful buyout. An acquiring company must have the ability to borrow significant sums against its assets. It should also be able to retain or attract a strong management team and have the potential to enhance the value of each investment. The ability of a company to support a leveraged buyout depends on whether it can service the principal and interest payment obligations.
Leveraged buyout
LBO is a purchase of a private company with borrowed funds. In general, it is defined as the acquisition, financed largely by borrowing of all the stock or assets of a hitherto public company by a small group of investors. Debt financing represents 50 per cent or more of the purchase price. The tangible assets of the firm to be acquired are used as collateral for the loans. Most LBOs are diet deals. A portion of the long term financing is secured by the firm's fixed assets. Subordinated debt either unrated or low-rated debt, referred to as junk bond financing, is used to raise the balance of the purchase price. The cash requirements for debt service force managers to shed unceded assets, improve operating efficiency and forego wasteful capital expenditure.
LBO is usually done through the stock or asset purchase format. In the former, target shareholders simply sell their stock and all interest in the target company to the buying group and then the two firms may be merged. In the asset purchase format, the target firm sells its assets to the buying group. After the buyout the acquired company is run as a privately held company for a few years after which the resale of the firm is anticipated. This buying group may be sponsored by buyout specialists or investment bankers that arrange such deals and usually includes representation by the incumbent management.
Buyers of the firm targeted to become an LBO often consist of managers from the firm being acquired. The LBO initiated by the target firm's incumbent management is called a management buyout (MBO). The buying group often forms a shell corporation to act as the legal entity making the acquisition. An MBO or LBO is a defensive measure against takeover. Investors in LBOs are referred to as financial buyers who hold their investments for five-seven years. LBOs are designed to force change in mature business and are a healthy way to create value where control of companies is advocated to promote efficiency. They can improve operating performance by restoring strong constructive relationships among the owners, managers and other corporate stockholders.
Private equity partnerships make most of the investment in LBOs. Private equity partnerships eliminate the separation of ownership and control. Incentives to achieve high exit values for the partnership investment are provided to the general partners. At the same time limited partners are protected by the partnership's limited life and prohibition of reinvestment within the partnership. The private equity partnership or fund is also common in venture capital industry and private investment. The limited partners are mostly institutional investors and first in line when the partnership investments are sold. The general partners who organise and manage the fund get a carried interest in the fund's profits.
LBOs offer a useful format for effective governance of corporations. They are not merely deals but represent an alternative model of corporate ownership and control just as public ownership, venture capital ownership and franchise arrangements. Temporary ownership by an LBO firm can provide an important bridge to better long-term management and performance. This kind of ownership is adaptable to a wide universe of business.
LBOs approach to ownership and governance is typified by direct lines of communication between owners and top management, managerial autonomy and a willingness by owners to step in and direct operations to correct chronic problems and trust-based relationships among owners, managers and key creditors. Trust is built over time in a variety of ways, including the alignment of interests through equity ownership and incentive compensation.
LBO and corporate governance
The Cadbury Committee, while attempting to set forth principles of best practice in British Corporate Governance, studied LBOs, venture capital firms and relational investing (Warren Buffet) as possible models for best practices. Since LBOs are viewed primarily as financial transactions, their effect on governance is often overlooked. Finance and governance are closely related. Equity (corporate governance) is a matter of constant negotiation. Debt and equity are not merely different types of financial claims but constitute alternative approaches to monitoring corporate performance and directing management governance. Equity and debt are opposite ends of a continuum of potential governance regimes. Debt is rigid but leads to a simple and low cost regime; and equity is flexible and adoptive but complex and costly. The ideal form of governance depends on the nature of the assets to be managed, the transaction stream those assets support and the growth opportunities. LBO is one form of governance that is suitable for a wide cross section of business. It represents a young and still evolving organisational form in a market-determined economy.
LBO operation
The first stage of operation consists of raising the cash required for the buyout and devising a management incentive system. About 10 per cent of the cash is put up by investor group and 50-60 per cent is raised by borrowing against the company's assets in secured bank acquisition loans. The LBO represents debt bonding activity.
In the second stage of operation, the organising sponsor group may adopt the stock purchase format or asset purchase format. In the stock purchase format, all the company's outstanding shares are purchased and a new company is formed. A new private company purchases all the assets of the company. In the third stage of operation the management strives to increase profits and cash flows by reducing operating costs and altering market strategies to help LBO bonds managers to meet newly set targets. The investor group in the fourth stage may take the company public if the company is strong and the goals of the group are achieved. The reverse LBOs are undertaken mostly by expost successful LBO companies through public equity offerings known as secondary initial public offering. The purpose of reconversion to public ownership is to create liquidity for the shareholders.
Conducive conditions
LBO targets are found in manufacturing firms in basic, non-regulated industries with low financing requirement. High tech firms are less appropriate as they do not have adequate track record, carry higher business risks and have fewer leverageable assets. Leveraged buyouts are likely to occur in firms or industries where managers are vulnerable to expropriation and assets are implastic in allowing greater borrowing to finance buyouts. These conditions are likely to exist in mature firms with limited growth opportunities Track record of capable management enhances success of LBO. The purchase price in LBOs should be slightly above the book value. Vulnerability to opportunistic behaviour among stakeholders may give rise to hold ups or moral hazards. Hold up or expropriation of quasi-rents is likely in specialised investments. Debtor-creditor relations give rise to moral hazards especially when the firm's assets are plastic, allowing for a wide range of discretionary decisions. Quasi-rents can be appropriated by shareholders, labour and other stakeholders. Protection is available to managers by holding incentive compensation contract more tightly related to performance.
Norms for leverage buyouts
The Reserve Bank of India is expected to come out with guidelines for financing leveraged buyouts. The norms are expected to encourage public sector banks to finance mergers and acquisitions (M&A). Traditionally, public sector banks have steered clear of M&A financing because there are no clear guidelines for this. At the same time, the more adventurous banks that plan to use this avenue to make their asset-books grow, may be reined in once the RBI takes a decision on norms. But instead of framing rules, the RBI is expected to tell banks to put in place transparent leveraged buyout rules approved by their boards. Leveraged buyout financing is likely to emerge in India against the backdrop of the government's divestment programme.
The RBI neither prohibits nor endorses M&A financing. Banks have lent money to some corporates that have picked up PSUs through the divestment route. But this is more of balance-sheet financing and not leveraged buyout financing. Indian banks have traditionally carried out either balance-sheet, or asset-based, financing. Loan decisions are mainly taken on the basis of the cash flow of corporates. In an LBO, a significant amount of the funding of the takeover of the controlling interest in a company comes from borrowed funds — usually 70 per cent or more of the total purchase price.
As per international buyout practices, a target company's assets serve as security for the loans taken by the acquiring firm. The latter repays the loans out of the cash flow of the acquired company, its profits or by selling its assets. Globally, many leveraged buyouts have been financed through junk bonds. This is not the practice in India.
In the absence of norms governing M&A financing, banks have gone in for asset financing. Deutsche Bank, for instance, part-financed the Tatas' acquisition of a 25 per cent government holding in Videsh Sanchar Nigam Ltd in February. The foreign bank undertook the buyout deal by placing debt instruments with mutual funds and foreign institutional investors. The Tatas raised the required funds by leveraging their own balance-sheet.
However, public sector banks have largely avoided this kind of funding. Foreign banks, which have the expertise and the experience, have taken the lead here. The Government has ruled that MNCs will have to bring in funds from abroad rather than raise money from local banks for acquisitions.
There are three factors generally considered essential for a successful buyout. An acquiring company must have the ability to borrow significant sums against its assets. It should also be able to retain or attract a strong management team and have the potential to enhance the value of each investment. The ability of a company to support a leveraged buyout depends on whether it can service the principal and interest payment obligations.
Leveraged buyout
LBO is a purchase of a private company with borrowed funds. In general, it is defined as the acquisition, financed largely by borrowing of all the stock or assets of a hitherto public company by a small group of investors. Debt financing represents 50 per cent or more of the purchase price. The tangible assets of the firm to be acquired are used as collateral for the loans. Most LBOs are diet deals. A portion of the long term financing is secured by the firm's fixed assets. Subordinated debt either unrated or low-rated debt, referred to as junk bond financing, is used to raise the balance of the purchase price. The cash requirements for debt service force managers to shed unceded assets, improve operating efficiency and forego wasteful capital expenditure.
LBO is usually done through the stock or asset purchase format. In the former, target shareholders simply sell their stock and all interest in the target company to the buying group and then the two firms may be merged. In the asset purchase format, the target firm sells its assets to the buying group. After the buyout the acquired company is run as a privately held company for a few years after which the resale of the firm is anticipated. This buying group may be sponsored by buyout specialists or investment bankers that arrange such deals and usually includes representation by the incumbent management.
Buyers of the firm targeted to become an LBO often consist of managers from the firm being acquired. The LBO initiated by the target firm's incumbent management is called a management buyout (MBO). The buying group often forms a shell corporation to act as the legal entity making the acquisition. An MBO or LBO is a defensive measure against takeover. Investors in LBOs are referred to as financial buyers who hold their investments for five-seven years. LBOs are designed to force change in mature business and are a healthy way to create value where control of companies is advocated to promote efficiency. They can improve operating performance by restoring strong constructive relationships among the owners, managers and other corporate stockholders.
Private equity partnerships make most of the investment in LBOs. Private equity partnerships eliminate the separation of ownership and control. Incentives to achieve high exit values for the partnership investment are provided to the general partners. At the same time limited partners are protected by the partnership's limited life and prohibition of reinvestment within the partnership. The private equity partnership or fund is also common in venture capital industry and private investment. The limited partners are mostly institutional investors and first in line when the partnership investments are sold. The general partners who organise and manage the fund get a carried interest in the fund's profits.
LBOs offer a useful format for effective governance of corporations. They are not merely deals but represent an alternative model of corporate ownership and control just as public ownership, venture capital ownership and franchise arrangements. Temporary ownership by an LBO firm can provide an important bridge to better long-term management and performance. This kind of ownership is adaptable to a wide universe of business.
LBOs approach to ownership and governance is typified by direct lines of communication between owners and top management, managerial autonomy and a willingness by owners to step in and direct operations to correct chronic problems and trust-based relationships among owners, managers and key creditors. Trust is built over time in a variety of ways, including the alignment of interests through equity ownership and incentive compensation.
LBO and corporate governance
The Cadbury Committee, while attempting to set forth principles of best practice in British Corporate Governance, studied LBOs, venture capital firms and relational investing (Warren Buffet) as possible models for best practices. Since LBOs are viewed primarily as financial transactions, their effect on governance is often overlooked. Finance and governance are closely related. Equity (corporate governance) is a matter of constant negotiation. Debt and equity are not merely different types of financial claims but constitute alternative approaches to monitoring corporate performance and directing management governance. Equity and debt are opposite ends of a continuum of potential governance regimes. Debt is rigid but leads to a simple and low cost regime; and equity is flexible and adoptive but complex and costly. The ideal form of governance depends on the nature of the assets to be managed, the transaction stream those assets support and the growth opportunities. LBO is one form of governance that is suitable for a wide cross section of business. It represents a young and still evolving organisational form in a market-determined economy.
LBO operation
The first stage of operation consists of raising the cash required for the buyout and devising a management incentive system. About 10 per cent of the cash is put up by investor group and 50-60 per cent is raised by borrowing against the company's assets in secured bank acquisition loans. The LBO represents debt bonding activity.
In the second stage of operation, the organising sponsor group may adopt the stock purchase format or asset purchase format. In the stock purchase format, all the company's outstanding shares are purchased and a new company is formed. A new private company purchases all the assets of the company. In the third stage of operation the management strives to increase profits and cash flows by reducing operating costs and altering market strategies to help LBO bonds managers to meet newly set targets. The investor group in the fourth stage may take the company public if the company is strong and the goals of the group are achieved. The reverse LBOs are undertaken mostly by expost successful LBO companies through public equity offerings known as secondary initial public offering. The purpose of reconversion to public ownership is to create liquidity for the shareholders.
Conducive conditions
LBO targets are found in manufacturing firms in basic, non-regulated industries with low financing requirement. High tech firms are less appropriate as they do not have adequate track record, carry higher business risks and have fewer leverageable assets. Leveraged buyouts are likely to occur in firms or industries where managers are vulnerable to expropriation and assets are implastic in allowing greater borrowing to finance buyouts. These conditions are likely to exist in mature firms with limited growth opportunities Track record of capable management enhances success of LBO. The purchase price in LBOs should be slightly above the book value. Vulnerability to opportunistic behaviour among stakeholders may give rise to hold ups or moral hazards. Hold up or expropriation of quasi-rents is likely in specialised investments. Debtor-creditor relations give rise to moral hazards especially when the firm's assets are plastic, allowing for a wide range of discretionary decisions. Quasi-rents can be appropriated by shareholders, labour and other stakeholders. Protection is available to managers by holding incentive compensation contract more tightly related to performance.
Norms for leverage buyouts
The Reserve Bank of India is expected to come out with guidelines for financing leveraged buyouts. The norms are expected to encourage public sector banks to finance mergers and acquisitions (M&A). Traditionally, public sector banks have steered clear of M&A financing because there are no clear guidelines for this. At the same time, the more adventurous banks that plan to use this avenue to make their asset-books grow, may be reined in once the RBI takes a decision on norms. But instead of framing rules, the RBI is expected to tell banks to put in place transparent leveraged buyout rules approved by their boards. Leveraged buyout financing is likely to emerge in India against the backdrop of the government's divestment programme.
The RBI neither prohibits nor endorses M&A financing. Banks have lent money to some corporates that have picked up PSUs through the divestment route. But this is more of balance-sheet financing and not leveraged buyout financing. Indian banks have traditionally carried out either balance-sheet, or asset-based, financing. Loan decisions are mainly taken on the basis of the cash flow of corporates. In an LBO, a significant amount of the funding of the takeover of the controlling interest in a company comes from borrowed funds — usually 70 per cent or more of the total purchase price.
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