The Determinants of Buyout Returns: Does Transaction Strategy Matter?

50 Pages Posted: 21 Nov 2010 Last revised: 24 Apr 2019

See all articles by Brian Ayash

Brian Ayash

California State Polytechnic University, San Luis Obispo - Finance Area

Robert P. Bartlett

Stanford Law School

Annette B. Poulsen

University of Georgia - Department of Banking and Finance; European Corporate Governance Institute (ECGI)

Date Written: May 31, 2107

Abstract

Using an original dataset of fully monetized LBOs initiated from 1990-2006, we examine the emergence of an entrepreneurial transaction strategy focused on revenue growth and its incidence relative to more "classic" strategies focused on operating efficiencies. We additionally show how the conventional focus on returns measured at an IPO or acquisition frequently overstates actual realized returns to sponsors. Using this return data, we evaluate how "classic" and "entrepreneurial" strategies are associated with sponsors' equity returns. Among successful LBOs, LBOs that enhance operating efficiencies produce the highest "exit" returns; however, LBO sponsors commonly fail to monetize these returns due to delays associated with liquidating portfolio positions. In contrast, LBOs that focus on growing revenues are associated with higher fully realized equity returns, suggesting more sustainable value-creation for sponsors and their investors.

Keywords: LBOs, Private Equity, Return to Investment, Ownership Structure

JEL Classification: G24, G32, G34

Suggested Citation

Ayash, Brian and Bartlett, Robert P. and Poulsen, Annette B., The Determinants of Buyout Returns: Does Transaction Strategy Matter? (May 31, 2107). Journal of Corporate Finance, Vol. 46, 2017, Available at SSRN: https://ssrn.com/abstract=1712393 or http://dx.doi.org/10.2139/ssrn.1712393

Brian Ayash

California State Polytechnic University, San Luis Obispo - Finance Area ( email )

College of Business
San Luis Obispo, CA 93407
United States

Robert P. Bartlett (Contact Author)

Stanford Law School

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Annette B. Poulsen

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Department of Finance
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/apoulsen/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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