Buyouts: A Primer

Fisher College of Business Working Paper No. 2021-03-18

Charles A. Dice Center Working Paper No. 2021-18

117 Pages Posted: 16 Nov 2021 Last revised: 15 Aug 2022

See all articles by Tim Jenkinson

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Hyeik Kim

Ohio State University (OSU), Department of Finance

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: August 9, 2022

Abstract

This paper provides an introduction to buyouts and the academic literature about them. Buyouts are initiated by “buyout funds”, which are limited partnerships raised from mostly institutional investors. The funds earn returns for their investors by improving the operations of the firms they acquire and exiting them for a profit. Buyout funds have grown substantially and currently raise more than $400 billion annually in capital commitments. We first discuss the institutional environment that developed to foster such buyouts and to provide incentives for general partners and firm managers to earn returns for the fund’s investors. We then describe various strategies that funds use to increase the values of their portfolio companies. The paper provides up to date statistics on all aspects of the buyout industry. Finally, we present a summary of the academic literature on buyouts. This literature has paid particular attention to the extent to which buyouts earn risk-adjusted abnormal returns for their investors, as well as the sources of those returns.

Keywords: Leveraged Buyouts, Sources of Value, Contractual Structure, Abnormal Returns in Buyouts

JEL Classification: G24, G34

Suggested Citation

Jenkinson, Tim and Kim, Hyeik and Weisbach, Michael S., Buyouts: A Primer (August 9, 2022). Fisher College of Business Working Paper No. 2021-03-18, Charles A. Dice Center Working Paper No. 2021-18, Available at SSRN: https://ssrn.com/abstract=3964770 or http://dx.doi.org/10.2139/ssrn.3964770

Tim Jenkinson

University of Oxford - Said Business School ( email )

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HOME PAGE: http://www.sbs.oxford.edu/timjenkinson

European Corporate Governance Institute (ECGI)

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HOME PAGE: http://www.ecgi.org

Hyeik Kim

Ohio State University (OSU), Department of Finance ( email )

2100 Neil Avenue
Columbus, OH
United States

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

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Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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