Do Buyouts (Still) Create Value?

Abstract

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: leverage buyouts, value creation

JEL Classification: G34