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Club Deals in Leveraged Buyouts

55 Pages Posted: 5 May 2008 Last revised: 16 Dec 2009

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems

Oguzhan Ozbas

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Berk A. Sensoy

Vanderbilt University - Finance

Date Written: August 26, 2009

Abstract

We analyze the pricing and characteristics of club deal leveraged buyouts (LBOs) – those in which two or more private equity partnerships jointly conduct an LBO. Using a comprehensive sample of completed LBOs of U.S. publicly traded targets conducted by prominent private equity firms, we find that target shareholders receive approximately 10% less of pre-bid firm equity value, or roughly 40% lower premiums, in club deals compared to sole-sponsored LBOs. This result is concentrated before 2006 and in target firms with low institutional ownership. These results are robust to controls for target and deal characteristics, including size, Q, measures of risk, and time and industry fixed effects. We find little support for benign motivations for club deals based on capital constraints, diversification motives, or the ability of clubs to obtain favorable debt amounts or prices, but it is possible that the lower pricing of club deals is an inadvertent byproduct of an unobserved benign motivation for club formation.

Suggested Citation

Officer, Micah S. and Ozbas, Oguzhan and Sensoy, Berk A., Club Deals in Leveraged Buyouts (August 26, 2009). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1128404 or http://dx.doi.org/10.2139/ssrn.1128404

Micah S. Officer

Loyola Marymount University - Department of Finance and Computer Information Systems ( email )

Los Angeles, CA 90045
United States

Oguzhan Ozbas (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-0781 (Phone)
213-740-6650 (Fax)

Berk A. Sensoy

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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