Are Buyout Sponsors Market Timers in RLBOs?

35 Pages Posted: 21 Nov 2007 Last revised: 12 Nov 2013

Date Written: August 12, 2009

Abstract

Using a comprehensive sample of RLBOs (reverse leveraged buyouts) from 1981 to 2006, this paper analyzes buyout sponsors’ exit strategies to assess whether their market timing affects the LBO restructuring process. The results indicate that LBO duration is negatively related to hot both IPO market conditions and industry valuation, which suggests that sponsors spend less time restructuring LBOs under more favorable external market conditions. RLBOs with shorter LBO duration experience greater deterioration of performance and the listing of immature LBOs (quick flip) leads to a high probability of bankruptcy. Moreover, post IPO, buyout sponsors tend to exit selectively; that is, they are more likely to exit when industry valuation is higher, and the more reputable sponsors are more likely to do so via facilitating takeovers.

Keywords: Private equity, RLBO, Market timing, Restructuring, LBO, Exiting, Buyout

JEL Classification: G24, G32

Suggested Citation

Cao, Jerry, Are Buyout Sponsors Market Timers in RLBOs? (August 12, 2009). EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1031690 or http://dx.doi.org/10.2139/ssrn.1031690

Jerry Cao (Contact Author)

Independent

No Address Available

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