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The Determinants of Buyout Returns: Does Transaction Strategy Matter?

50 Pages Posted: 21 Nov 2010 Last revised: 3 Oct 2017

Brian Ayash

California State Polytechnic University, San Luis Obispo - Finance Area

Robert P. Bartlett III

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy

Annette B. Poulsen

University of Georgia - Department of Banking and Finance

Date Written: May 31, 2107

Abstract

Using an original dataset of fully monetized LBOs initiated from 1990-2006, we examine the emergence of an entrepreneurial transaction strategy focused on revenue growth and its incidence relative to more "classic" strategies focused on operating efficiencies. We additionally show how the conventional focus on returns measured at an IPO or acquisition frequently overstates actual realized returns to sponsors. Using this return data, we evaluate how "classic" and "entrepreneurial" strategies are associated with sponsors' equity returns. Among successful LBOs, LBOs that enhance operating efficiencies produce the highest "exit" returns; however, LBO sponsors commonly fail to monetize these returns due to delays associated with liquidating portfolio positions. In contrast, LBOs that focus on growing revenues are associated with higher fully realized equity returns, suggesting more sustainable value-creation for sponsors and their investors.

Keywords: LBOs, Private Equity, Return to Investment, Ownership Structure

JEL Classification: G24, G32, G34

Suggested Citation

Ayash, Brian and Bartlett, Robert P. and Poulsen, Annette B., The Determinants of Buyout Returns: Does Transaction Strategy Matter? (May 31, 2107). UC Berkeley Public Law Research Paper No. 1712393. Available at SSRN: https://ssrn.com/abstract=1712393 or http://dx.doi.org/10.2139/ssrn.1712393

Brian Ayash

California State Polytechnic University, San Luis Obispo - Finance Area ( email )

College of Business
San Luis Obispo, CA 93407
United States

Robert P. Bartlett III (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States
510-642-6646 (Phone)

University of California, Berkeley - Berkeley Center for Law, Business and the Economy

UC Berkeley School of Law
Berkeley, CA 94720

Annette B. Poulsen

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

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