Management Buy Outs in the hospitality (hotel) industry Essay

Management Buy Outs in the hospitality (hotel) industry - Essay Example Most managers need additional financial support from leveraged buyout (LBO) (Ledger, 2015). There are current developments in the hospitality industry involving management buyouts (Wei & Hudson, 2008). This paper examines management buyouts in the hospitality industry, with particular emphasis on hotels, its financial benefits, and possible risks involved. In leveraged buyouts (LBO), large portion of purchasing funds is a debt financed. Buyout associations privately own the remaining equity. MBO get financial assistance from private equity investors who receive shares in the new company as buyout associates. Managers always have internal information about the enterprise than outside shareholders. That is the advantage they over external bidders. Owing to the prior information related to the business they possess, managers tend to purchase the company with excellent prospects for future development. For example, the buying of Menzies Hotel by its management in 2011 led to the restructuring of the Hotel under a new company called Cordial Hotels. Another significant example is the successful closure of Gulf Capital, one of the most active and investments in the Middle East in Abu Dhabi (Gulf Capital, 2015). Management buyouts have diverse financial advantages. There are three groups of parties affected by management buyouts from a financial viewpoint. Stockholder the hotel business entity, the managers and employees, all experience the financial implications of management buyouts. Buyouts may imply the sponsor (s) privately acquires the hotel enterprise or company. Shareholders, therefore, cease to own the company or hotel business. Contrary to the case of a merger, shareholders may not have control over the company’s finances. In fact, they may lose their equity in the company (Wilson & Wright, 2013). Should the sponsors fail to acquire the company,