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Case Study

Cerberus acquires GMAC (B): The transaction

By Arturo Bris and Inna Francis

9 pages

December 2007

Reference: IMD-1-0268

Hedge fund Cerberus Capital Management assembled a deal to buy a majority stake in GMAC – the financing business of auto maker GM. The sale of a majority stake in GMAC’s financing arm was part of a strategy to return GMAC’s credit rating to investment grade, which would lower its cost of borrowing – essential for a finance company to remain competitive. The sale would also provide a cash infusion to parent GM, which was struggling under the weight of a massive fixed cost structure and fierce competitive pressures.

Learning Objective

Address the question of whether Cerberus and GMAC can structure a deal that would give a private equity firm the return they needed and give GMAC investment-grade rating. Private equity and hedge fund investors usually buy companies in order to pile on debt, but GMAC could not garner investment-grade ratings with a high leverage ratio. Another complication to be considered was the auto finance business, which made up a little less than half of GMAC’s revenue. Participants may question whether the private equity firm should get involved in financing GM cars when the auto maker’s market share is sliding and the company is bordering the threat of bankruptcy protection.

Keywords

Private Equity, Acquisition, Capital Structure, Hedge Fund

Settings

United States of America
General Motors
May 2005 - December 2006

Type

Published Sources

Available Languages

English

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This case study is part of a series

Cerberus acquires GMAC (A): General Motors’ financial troubles
Cerberus acquires GMAC (B): The transaction

This case study is part of a series

Cerberus acquires GMAC (A): General Motors’ financial troubles
Cerberus acquires GMAC (B): The transaction

Cerberus acquires GMAC (A): General Motors’ financial troubles

By Arturo Bris and Inna Francis
Case reference: IMD-1-0267 ©2007

Summary

Hedge fund Cerberus Capital Management assembled a deal to buy a majority stake in GMAC - the financing business of auto maker GM. The sale of a ma...

Reference IMD-1-0267

Organization General Motors

Available Languages English

Contact

Research Information & Knowledge Hub for additional information on IMD publications

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