We embark on the quest for the optimal capital structure by constructing an integrated model based on traditionalist (irrelevance hypothesis) and modernist (tax, risky debt and costly contracting hypothesis) views. In a second step we review common terms of financing instruments used in European Buy-Outs (ie. Senior debt, Mezzanine, High Yield, Preferred Equity, Equity) in the light of these theoretical insights. Finally the capitalisation process is embedded in a broader framework for value levers in Buy-Out transactions and an outlook on further research is given.
This research provides a solid review of relevant literature on capital structure (eg. Modigliani & Miller, Agency Theory) and can be used as an introduction for the inexperienced reader. The consistent mapping of common financing terms against relevant theoretical hypothesis is unique among related literature.]]>