Interpreting the M&A Black Box by Thinking Outside the Box

This chapter aims to provide policymakers with data and new insights to better evaluate the current worldwide debate on debt merger acquisitions, as well as shed some light on the perils of stringent financial bans on these types of transactions. It describes the financial structure of leveraged buyouts (LBOs) by discussing the typical LBO investment process and highlights what is inside the LBO black box. The chapter describes the new corporate governance reform issued in Italy. It highlights unresolved issues associated with the legitimacy of LBOs, as well as important challenges and criticism raised by the tax authorities. The debate on the LBO legitimacy exacerbated in 2000 when a Supreme Court's Decision deemed the LBO scheme illegal and prohibited its adoption within the Italian market. Since the late 2000s, the Italian Tax Authority has severely challenged LBOs because they are viewed as fraudulent tools implemented by private equity investors to elude the fiscal law, as well as to evade taxes.