Leveraged Buyouts of Private Companies
39 Pages Posted: 3 Aug 2011
Date Written: August 3, 2011
Over the last two decades, the number (enterprise value) of leveraged buyout transactions involving privately held targets totals more than 10,000 (over $850 billion), accounting for 46% (21%) of the worldwide leveraged buyout market. Yet the vast majority of academic studies focus on the buyouts of publicly held targets. This paper investigates the effects of leveraged buyouts on privately held targets. I find that, unlike the corporate restructuring process of public firms after the buyouts, private targets sponsored by private equity firms grow substantially after the buyouts. The overall evidence suggests that private equity firms, through leveraged buyouts, facilitate private targets’ growth by alleviating targets’ investment constraints.
Keywords: Leveraged buyout, Private equity, Private firms, Agency costs, Investment constraints
JEL Classification: G32, G34
Suggested Citation: Suggested Citation