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The Debt Trap

How leverage impacts private-equity performance

By Sebastien Canderle

Hardback £50.00 / $65.00
eBook £25.00 / $30.00
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The Debt Trap

How leverage impacts private-equity performance

By Sebastien Canderle

Jacket text

This is the inside story of private equity dealmaking.

Over the last 40 years, LBO fund managers have demonstrated that they are good at making money for themselves and their investors. But when one looks beneath the surface of the transactions they engineer, it is apparent that these deals can, at times, go spectacularly wrong.

Through 14 business stories, all emanating from the noughties’ credit bubble and including headline-grabbing names like Caesars, Debenhams, EMI, Hertz, Seat Pagine Gialle and TXU, The Debt Trap shows how, via controversial practices like quick flips, repeat dividend recaps, heavy cost-cutting and asset-stripping, leveraged buyouts changed, for better or for worse, the way private companies are financed and managed today.

From technological disruption in the worlds of music recording and business-directory publishing to economic turbulence in the gambling, real estate and energy sectors, highly levered corporations are often incapable of handling market corrections when debt commitments start piling up. Behind the historical events and the financial empires erected by some of the elite private equity specialists, these 14 in-depth case studies examine how value-maximising techniques and a short-cut mentality can impact investment returns and portfolio assets.

Whether you are a PE practitioner, investor, business manager, academic or business student, you will find The Debt Trap to be an authoritative and fascinating account.

About the author

Sebastien Canderle has more than 20 years of experience in the consulting and financial sectors in New York and London, including as an investor for various private equity firms. He is also the author of 'Private Equity's Public Distress', a book covering the impact of the financial crisis of 2008 on the buyout industry, and has been a contributor to several financial blogs as well as a business school lecturer in private equity.

Reviews

“Not only does the book offer plenty of warning for private investors about investing in IPOs (Initial Public Offerings) where the company floating is backed by a Private Equity (PE) house, but also offers institutional investors plenty of evidence of what can go wrong with companies saddled with the exorbitant debt an LBO can bring…..What I most like about this book is its broad scope in explaining the social effects of this kind of financial engineering.”

Owen Jones, Fidelity

“The text is a great resource for PE fund managers and businesspeople alike.”

Wharton Magazine

“Canderle lets the facts and circumstances do the talking. In his estimation, the reader will need to draw her own conclusions as to the merits and demerits of the discipline. At the very least, it would seem that the truth about private equity’s intentions lies somewhere between opprobrium and encomium, though the author at times is unsparing in his criticism of the industry’s shortcomings. Private equity is as much an investment strategy as it is an asset class. As such, it is multifaceted, often subject to the whims of human emotion, something that the case studies bring out with a high degree of granularity. The book assumes knowledge of the rudiments of finance, but is not completely inaccessible to those who lack it. On the contrary, it encourages the reader to learn more. Academics and financial writers could take a page from Canderle’s book…literally. …The author’s style is erudite, yet he felicitously phrases the narrative to make what could otherwise be a dry volume into an engaging read. Private equity is dynamic. Enjoy this series of financial short stories. Perhaps truth is at times stranger than fiction.”

Marc L. Ross, CFA

“The author has broken the usual methods of asset class and giving you relatable examples for the same. He has made investing in private equity simple by opening doors for future investment for the audiences and readers of this book.”

Dheeraj Vaisya, Wall Street Mojo blog

“…The Debt Trap is a very valuable addition to the inordinately small body of literature on the subject of private equity…By breaking down the asset class’s methods through relatable examples, Canderle has opened the door for further investigation into the opaque world of private equity.”

Darragh Riordan, Real Deals

“Private equity plays a crucial role in modern economies. What Sebastien Canderle explains is that the sector’s performance depends on a very specific set of value triggers, first among them the optimal use of leverage. Get the mix wrong, however, and as the book’s well-researched case studies demonstrate, even the most experienced fund managers can come to regret their foray into leveraged buyouts. The Debt Trap is filled with grounded analysis and is an authoritative book for PE practitioners and scholars alike.”

Franklin Allen, Nippon Life Professor of Finance and Economics at the Wharton School of the University of Pennsylvania, and Brevan Howard Centre director at Imperial College in London

“Written for an audience with a working knowledge of finance, The Debt Trap dissects the dealmaking that undergirds leveraged buyouts and provides an essential road map to the many ways that this has changed since the 2008 nancial crisis. Detailed examinations of high-profile buyouts demystify the excessively risky and opaque means – new and old – that private equity firms use to acquire companies. The Debt Trap should be required reading for the staff and trustees of institutional investors, and for professionals working at lending institutions, but the clear writing and compelling case studies make it appealing to a much wider audience.”

Eileen Appelbaum, Senior Economist at the Center for Economic and Policy Research, and author of Private Equity at Work

“Private equity has thrived on debt. Excessive debt can harm companies. This important book shows how and why thanks to a rich set of in-depth case studies. It is essential reading for practitioners and students of private equity.”

Francois Degeorge, Senior Chair of the Swiss Finance Institute and Professor of Finance at the Universita della Svizzera italiana

“Sebastien Canderle has written a genuinely compelling book that raises crucial questions about modern-day PE investment practices. The Debt Trap is a thoughtful and stimulating work that helps to frame the debate on value creation in the world of alternative finance.”

Pablo Fernandez, Professor of Financial Management and PricewaterhouseCoopers Chair of Corporate Finance at IESE Business School

“Sebastien Canderle’s book should be at the top of recommended reading lists for every finance course. It is a skilful critique of the fast-paced private equity industry. Drawing on a vast amount of research, The Debt Trap gives fascinating insights into some of the most illustrious leveraged buyouts, which will help to improve our teaching of finance and contribute to a sounder financial industry. For that reason it deserves to be read.”

Jacques Regniez, Professor of Economics and Finance at the State University of New York

“A valuable contribution to the literature on private equity, The Debt Trap is an absorbing study of why leverage is a two-edged sword and should be used with utmost caution. The book is an important read for anyone involved in the private equity world or even the finance world at large.”

Jacob Wolinsky, CEO of ValueWalk

Media coverage

From Professional Manager magazine:

“Most students are taught that investors are rational and markets are efficient,” says Sebastien Canderle, author of The Debt Trap. “The reality is that anyone who invests money is emotional, and driven by fear and greed.”

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From Investors Chronicle:

Excerpt. To read the whole article you will need to subscribe to Investor’s Chronicle. “In his book The Debt Trap Sebastien Canderle looks in detail at DX group to see what lessons can be learned. Debt once again was a familiar problem: it had a net debt to cash profits multiple above six times before… Read more »

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From MoneyWeek:

Please follow link to full article on the website.

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From Fidelity:

The Debt Trap by Sebastien Canderle REVIEW BY OWEN JONES, FIDELITY PERSONAL INVESTING, 24 MARCH 2017 The Debt Trap by Sebastien Canderle, published by Harriman House Do you remember Go for broke? It was a board game from around the mid 1960s and was a kind of Monopoly in reverse. Players received £1million at the… Read more »

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From Wharton Magazine:

Call it “the art of the leveraged buyout.” In The Debt Trap, Canderle explores some of the more controversial business strategies such as quick flips, repeat dividend recaps, heavy cost cutting, and asset stripping as related to leveraged buyouts. By matching each chapter with a related in-depth case study from companies such as Caesar’s, Debenhams,… Read more »

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From Wall Street Mojo:

#8 – The Debt Trap: How leverage impacts private-equity performance by— Sebastien Canderle INTRODUCTION Debt commitments of huge organizations start piling up when the companies are generally not able to cope with market corrections. This book is behind the screen mentality and techniques used as a shortcut that impact the return of portfolio assets and… Read more »

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From The Financial Times:

Private equity group attracts €25bn-€30bn of demand for its latest buyout fund BY JAVIER ESPINOZA CVC Capital Partners has tightened the terms being offered to new investors in its latest buyout fund after the private equity group attracted demand for double the amount it is seeking to raise. CVC, Europe’s biggest private equity group, will… Read more »

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From Economia :

Over the last 40 years, leveraged buy-out fund managers have demonstrated that they are good at making money for themselves and their investors. But when one looks beneath the surface of the transactions they engineer, it is apparent these deals can go spectacularly wrong When winning the Coral auction in December 1998, Morgan Grenfell Private… Read more »

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From ValueWalk:

It is unclear what repercussions a Trump presidency will have on private equity. Its proposed repeal or dilution of the Dodd-Frank Act should encourage lending from banks, although that could negatively affect non-bank lending activities. Trump has also proposed to tackle the generous tax treatment of carried interest, the traditional freebies for PE dealmakers. Regardless,… Read more »

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From Real Deals:

Ex-Candover dealmaker Sebastien Canderle pulls no punches on private equity’s love affair with debt By Darragh Riordan Follow link for full text.

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From Pension Pulse:

Blog posted by Leo Kolivakis Sebastien Canderle, author of The Debt Trap: How leverage impacts private-equity performance, sent me a guest comment (added emphasis is mine): It usually takes a financial crisis of the magnitude witnessed in 2008 for glitches within an economic system to come to light. It has been widely known and reported… Read more »

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From Investors Chronicle:

For the private investor, waiting for the latest initial public offerings is a bit like waiting to see what is on offer in the office canteen. There is no guarantee what exactly will turn up, the state it will be in and the kind of value it will present. All one can do is maintain… Read more »

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Contents

Preface
Abbreviations and Lexicon
Introduction

Chapter 1. Tricks of the Trade

Part One. Asset-Shifting: Secondary Buyouts and their Offspring
Chapter 2. Gala Coral – Game on!

Part Two. Asset-Flipping: Recaps and Quick Flips, or the Art of Making a Quick Buck
Chapter 3. Hertz – The Need for Speed
Chapter 4. Celanese – Rich Chemistry

Part Three. Financial Engineering and the Risks Pyramid
Chapter 5. TXU – Power Struggles
Chapter 6. EMI – Out of Tune

Part Four. Repurchases or Relapse Buyouts: Seller's Remorse
Chapter 7. PHS – Washed-up
Chapter 8. Frans Bonhomme – Down the Drain

Part Five. Listing, Delisting, Relisting: On a Fool's Errand
Chapter 9. DX Group – Going Postal
Chapter 10. Debenhams – Debt Never Goes Out Of Fashion

Part Six. Private Investments in Public Equity: PIPE Dream or Nightmare?
Chapter 11. PagesJaunes – The French Disconnection
Chapter 12. Seat Pagine Gialle – The Italian Job

Part Seven. PE-backed IPOs: The Search for a Patsy
Chapter 13. eDreams – Reality Fights Back
Chapter 14. Foxtons – Timing the Market

Part Eight. Asset-Stripping: Modern-day Creative Destruction
Chapter 15. Caesars Entertainment – PE's Version of Strip Poker

Part Nine. Trick or Treat
Epilogue. Sheriffs and Cowboys

Acknowledgements
About the author
Endnotes
Index



Published: 19/09/2016
Edition: 1st
Pages: 542
Formats: hardback - ISBN 9780857195401
ebook - ISBN 9780857195418
Media enquiries

If you’d like to get in touch with the author for interview or comment, or you’d like a review copy of this book, please contact us at pr@harriman-house.com or call +44 (0)1730 233870.

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