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Club Deals in Leveraged Buyouts

Micah S. Officer
Loyola Marymount University - Department of Finance and Computer Information Systems

Oguzhan Ozbas
University of Southern California - Marshall School of Business - Finance and Business Economics Department

Berk A. Sensoy
Fisher College of Business - Ohio State University

October 28, 2008

Marshall School of Business Working Paper No. MKT 10-08

Abstract:
We analyze the pricing and characteristics of club deal leveraged buyouts (LBOs) - those in which two or more private equity partnerships jointly conduct an LBO. We find that target shareholders receive approximately 10% less in club deals than in sole-sponsor LBOs. These results are robust to numerous controls for target and deal characteristics, including size, Q, and measures of risk, as well as time and industry fixed effects. The results are stronger before 2006, when club deals began to receive heightened media and government scrutiny. High institutional ownership in the target firm mitigates the club deal effect, suggesting that sophisticated institutional investors are able to bargain effectively with clubs. We find little to no support for benign motivations for club deals based on capital constraints, diversification motives, or the ability of clubs to obtain favorable debt amounts or prices. Overall, our findings are consistent with the view that club deals are detrimental to passive, dispersed shareholders of publicly-traded corporations, especially before 2006.

Working Paper Series

Date posted: May 05, 2008 ; Last revised: October 30, 2008

Suggested Citation

Officer, Micah S., Ozbas, Oguzhan and Sensoy, Berk A., Club Deals in Leveraged Buyouts (October 28, 2008). Marshall School of Business Working Paper No. MKT 10-08. Available at SSRN: http://ssrn.com/abstract=1128404

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Contact Information

Oguzhan Ozbas (Contact Author) University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email ) Marshall School of Business Los Angeles, CA 90089 United States 213-740-0781 (Phone) 213-740-6650 (Fax)
Micah S. Officer Loyola Marymount University - Department of Finance and Computer Information Systems ( email ) Los Angeles, CA 90045 United States
Berk A. Sensoy Fisher College of Business - Ohio State University ( email ) 2100 Neil Avenue Columbus, OH 43210-1144 United States