A leveraged buyout (LBO) describes a transaction in which a firm is acquired mainly through debt payments. The corporation being acquired sells its assets, which also serve as loan security. This strategy is frequently used to shift a publicly traded corporation into a private sector or separate a portion of an already operating company for sale. Companies listed on a stock exchange have advantages over privately held ones. However, scattered ownership systems could result in excessive management freedom (Renneboog & Vansteenkiste, 2017). By employing borrowed funds and assets or cash flows as leverage, leveraged buyouts (LBOs) enable the buyer to gain control and can assist in redirecting emphasis toward creating value for shareholders.
One prominent company in the corporate world is Coupa Software. This organization is a significant supplier of cloud-based BSM (business spend management) solutions. It has established itself with an impressive customer base of over 2,000 and a market valuation that exceeds $4 billion. However, Coupa decided to go with a $8 billion leveraged buyout by Thomas Bravo in February 2023 (Coupa, 2023). This came after navigating the unstable market conditions and experiencing pressure from activist investors. As a result of this calculated financial sink, Coupa obtained large leveraged loans totalling $2.6 billion from a group of lenders. A substantial minority investment from a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA) was also a part of the transaction.
Coupa’s decision to execute an LBO was taken to protect shareholder value. It was motivated by market fluctuations, the desire to remain a private company, and the demands of activist investors. The IT industry’s uncertainty in 2022 raised concerns about Coupa’s growth and undervaluation, which is why the LBO seemed attractive. Thomas Bravo’s experience in the software industry enabled rapid expansion, while activist investors supported corporate strategy changes and cost savings, enabling Coupa to go private and pursue long-term objectives.
The outcomes of the LBO were mixed for Coupa’s stakeholders. There was a 25% increase in shares. This allowed shareholders to profit quickly (Patra, 2020). However, this benefit came at the expense of giving up ownership and possibly losing out on future earnings related to the company’s growth. Given Coupa’s changed financial structure and strategic focus, suppliers and customers may see consequences that could lead to changes in partnerships, prices, or services. The LBO’s early indicators indicate possible successes. Further, Bravo’s resources and experience also put Coupa on the right track because it could accelerate its expansion and development.
The leveraged buyout of Coupa presents a positive opportunity to improve strategic focus, accelerate expansion, and generate long-term value. With no longer concerns about meeting quarterly targets or investor expectations, the company can confidently pursue its objectives. Thomas Bravo’s experience in the software sector serves as a catalyst, enabling Coupa to reach its full growth potential. Coupa’s solid finances and capable leadership will allow it to manage the risk despite rising debt. This LBO represents a significant advancement for Coupa.
Proverbs 22:7 warns of debt. It states, “ The rich rule over the poor, and the borrower is a slave to the lender, ” implying that debt comes with dangers and must be carefully considered. Although Coupa’s LBO may have been a long-term business move, there may be ethical implications due to the company’s high debt-to-equity ratio following the LBO. Overspending can put the business in danger of financial stability and pressure it to put repaying debt ahead of other ethical responsibilities.
References
Coupa Cloud Platform for Business Spend | Travel and Expense Management, Procurement, and Invoicing. (2023). Coupa.com. https://www.coupa.com/
Patra, S. (2020). Impact of Leveraged Buyout on Shareholders’ Value Added: Evidence from Select Indian Companies. Business Spectrum: IAA (South Bengal Branch), 10 (2), 1-9.
Proverbs22:7. BibleRef.com.Retrieved December 2, 2023, from:
https://www.bibleref.com/Proverbs/22/Proverbs-22-7.html
Renneboog, L., & Vansteenkiste, C. (2017). Leveraged buyouts: A survey of the literature. European Corporate Governance Institute (ECGI)-Finance Working Paper, (492).
write