59 Pages Posted: 25 Aug 2007 Last revised: 31 Aug 2009
Date Written: August 1, 2009
We examine whether, and how, leveraged buyouts from the most recent wave of public to private transactions created value. For a sample of 192 buyouts completed between 1990 and 2006, we show that these deals are somewhat more conservatively priced and less levered than their predecessors from the 1980s. For the subsample of deals with post-buyout data available, median market and risk adjusted returns to pre- (post-) buyout capital invested are 72.5% (40.9%). In contrast, gains in operating performance are either comparable to or slightly exceed those observed for benchmark firms. Increases in industry valuation multiples and realized tax benefits from increasing leverage while private are each economically as important as operating gains in explaining realized returns.
Keywords: leveraged buyout, private equity
JEL Classification: G34
Suggested Citation: Suggested Citation
Guo, Shourun and Hotchkiss, Edith S. and Song, Weihong, Do Buyouts (Still) Create Value‘ (August 1, 2009). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1009281 or http://dx.doi.org/10.2139/ssrn.1009281