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http://ssrn.com/abstract=1128404
 
 

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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


Ohio State University - Fisher College of Business

August 26, 2009

Journal of Financial Economics (JFE), Forthcoming

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. Using a comprehensive sample of completed LBOs of U.S. publicly traded targets conducted by prominent private equity firms, we find that target shareholders receive approximately 10% less of pre-bid firm equity value, or roughly 40% lower premiums, in club deals compared to sole-sponsored LBOs. This result is concentrated before 2006 and in target firms with low institutional ownership. These results are robust to controls for target and deal characteristics, including size, Q, measures of risk, and time and industry fixed effects. We find little 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, but it is possible that the lower pricing of club deals is an inadvertent byproduct of an unobserved benign motivation for club formation.

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Date posted: May 5, 2008 ; Last revised: December 16, 2009

Suggested Citation

Officer, Micah S. and Ozbas, Oguzhan and Sensoy, Berk A., Club Deals in Leveraged Buyouts (August 26, 2009). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1128404 or http://dx.doi.org/10.2139/ssrn.1128404

Contact Information

Micah S. Officer
Loyola Marymount University - Department of Finance and Computer Information Systems ( email )
Los Angeles, CA 90045
United States
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)
Berk A. Sensoy
Ohio State University - Fisher College of Business ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States

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