Do Buyouts (Still) Create Value?

45 Pages Posted: 21 Jul 2008 Last revised: 29 Oct 2014

See all articles by Shourun Guo

Shourun Guo

Duke Energy Corp.

Edith S. Hotchkiss

Boston College - Carroll School of Management

Weihong Song

Independent

Multiple version iconThere are 3 versions of this paper

Date Written: July 2008

Abstract

This paper examines 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 lower levered than their predecessors from the 1980s. For the subsample of deals with post-buyout data available, median market adjusted returns to pre- and post-buyout capital invested are 78% and 36%, respectively. In contrast, gains in operating performance are either comparable to or slightly exceed those observed for benchmark firms. We examine the relative contribution of several potential determinants of returns; in addition to gains in operating performance, returns are strongly related to increases in industry valuation multiples. Overall, our results provide insights into how transactions from the most recent wave of leveraged buyouts created value.

Suggested Citation

Guo, Shourun and Hotchkiss, Edith S. and Song, Weihong, Do Buyouts (Still) Create Value? (July 2008). NBER Working Paper No. w14187. Available at SSRN: https://ssrn.com/abstract=1165515

Shourun Guo (Contact Author)

Duke Energy Corp. ( email )

139 East Fourth Street
EA600
Cincinnati, OH 45202
United States

Edith S. Hotchkiss

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Department of Finance Fulton Hall, Room 330
Chestnut Hill, MA 02467
United States
617-552-3240 (Phone)
617-552-0431 (Fax)

Weihong Song

Independent

No Address Available

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