Evidence of Competition in the Leveraged Buyout Market

28 Pages Posted: 20 Mar 2007

See all articles by Jeffrey Oxman

Jeffrey Oxman

Syracuse University - Whitman School of Management

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York

Date Written: March 12, 2007

Abstract

We investigate the current leveraged buyout market in an effort to determine if the current market is overheated. Our evidence indicates that premiums paid in recent years are lower than those paid in the previous buyout wave of the 1980s. Furthermore, after controlling for firm-specific characteristics, we find that we are able to explain the cross-sectional differences in current premiums, and that there is little evidence of overpricing in the current market. We show evidence to indicate that buyout funds are targeting larger firms which indicates the pool of buyout targets is expanding. We also examine bank loans used to take firms private to determine if current targets are riskier firms than in years past. Our findings indicate that the price of risk, as measured by the credit spread, has increased since the buyout wave began. Loan maturities are shorter for riskier deals in the buyout wave than in the years prior to the buyout wave. These findings indicate that banks are becoming more sensitive to the underlying risk of buyout targets.

Keywords: Leveraged buyouts, corporate control

JEL Classification: G24, G34

Suggested Citation

Oxman, Jeffrey and Yildirim, Yildiray, Evidence of Competition in the Leveraged Buyout Market (March 12, 2007). Available at SSRN: https://ssrn.com/abstract=972060 or http://dx.doi.org/10.2139/ssrn.972060

Jeffrey Oxman (Contact Author)

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

Yildiray Yildirim

Zicklin School of Business, Baruch College - The City University of New York ( email )

55 Lexington Ave., Box B13-260
New York, NY 10010
United States

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