Articles: Leveraged Buy Out Risk and Reward / DRC Valuation Methods

Leveraged Buy Out are Risk and Reward

By MATT WIRZ
Dell Inc.'s DELL +1.67% potential $23 billion leveraged buyout could end up being more than just the end of an era for founder Michael Dell and the company's shareholders. Banks, private-equity firms and investors in bond and stock markets also hope it could be the deal that finally gets the leveraged-buyout machine cranking again—showering financiers in fees and potentially yielding big returns for investors. The deal, which people familiar with the discussions say could be announced as early as next week, is being closely watched. Mr. Dell and private-equity firm Silver Lake Partners seek some $15 billion in financing, the people said. A success could open the doors to other large deals that may be waiting in the wings. A deal that struggles or even fails to find financing could stymie those plans. "I think if Dell gets done, it certainly will mean that the jumbo LBOs are back," said Richard Farley a lawyer who represents banks in buyouts. But while many vested interests are rooting for a deal, some investors and bankers are cautioning that the transaction may face challenges. Dell, a computer maker based in Round Rock, Texas, has suffered four years of stagnant sales and has struggled to adapt to the shift away from desktops. Such a large amount of debt would place a heavy burden on a company whose business is deteriorating.

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