Buyouts: A Primer

95 Pages Posted: 23 Nov 2021 Last revised: 16 Apr 2023

See all articles by Tim Jenkinson

Tim Jenkinson

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

Hyeik Kim

University of Alberta - School of Business

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: November 2021

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.

Suggested Citation

Jenkinson, Tim and Kim, Hyeik and Weisbach, Michael S., Buyouts: A Primer (November 2021). NBER Working Paper No. w29502, Available at SSRN: https://ssrn.com/abstract=3968725

Tim Jenkinson (Contact Author)

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Hyeik Kim

University of Alberta - School of Business ( email )

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Michael S. Weisbach

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

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National Bureau of Economic Research (NBER)

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