Turning The Middle Market Upside Down: Unitranche Financing In U.S. Middle Market Leveraged Buyouts

Since the 1960’s, the leveraged buyout (LBO) industry has grown to represent a pillar of American finance. While Henry Ford’s management buyout in 1919 is often cited as the “first” LBO, these transactions became big business in the 1980’s. In 2015, aggregate private equity deal volume hit $634 billion, or around 3% of total U.S. market capitalization. The strategy has waxed and waned in popularity over the years, and has often earned a somewhat negative reputation with “Main Street” Americans. Hostile takeovers, “slash-and-burn” management styles, and corporate greed have cast a shadow on an industry largely portrayed to the public by books and movies like 1987’s Wall Street and tarnished by scandals such as Michael Milken’s conviction for racketeering and securities fraud in 1990. While the streamlining necessary to pay down large debt loads can lead to layoffs and liquidations, LBOs began as a means of providing viable growth and/or exit strategies for hard-working business owners. This paper analyzes the most common forms of middle-market LBO financing.