Leverage and Pricing in Buyouts: An Empirical Analysis
London School of Economics; Swedish Institute for Financial Research (SIFR)
Swedish House of Finance
University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); University of Oxford - Said Business School
Michael S. Weisbach
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)
February 15, 2009
EFA 2009 Bergen Meetings Paper
This paper provides an empirical analysis of the financial structure of large recent buyouts. We collect detailed information of the financings of 153 large buyouts (averaging over $1 billion in enterprise value). We document the manner in which these important transactions are financed. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by other factors than what explains leverage in public firms. In particular, the economy-wide cost of borrowing seems to drive leverage. Prices paid in buyouts are related to the prices observed for matched firms in the public market, but are also strongly affected by the economy-wide cost of borrowing. These results are consistent with a view in which the availability of financing impacts booms and busts in the private equity market.
Number of Pages in PDF File: 53
Keywords: Private equity, capital structure, leveraged buyouts
JEL Classification: G24, G32, G34
Date posted: February 19, 2009
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