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Financial Profile of Leveraged Buyout Targets: Some French Evidence

Author

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  • Anne-Laure Le Nadant

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Frédéric Perdreau

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

We investigate whether the financial characteristics of LBO targets differ from those of firms that have not undergone an LBO before the deal. Specifically, we examine the free cash flows, income taxes, capital intensity, business risk, profitability, financial structure, and asset characteristics of 175 French LBO targets that are mainly privately held and rather small companies, between 1996 and 2002. Predictions derive from the free cash flow and the tax savings hypotheses, and from the criteria used by LBO firms in their acquisition rationale. We conduct tests of differences between LBO targets and control companies and run logit regressions. Results show that LBO targets are less indebted, have more liquid (financial) assets, and exhibit higher business risk than their industry counterparts. A distinction between LBOs according to the vendor type shows that independent companies are smaller, more profitable, and have higher tax income levels, whereas former subsidiaries or divisions of groups are less profitable, and have more financial assets than their industry counterparts. Logit regressions suggest that LBOs of smaller independent targets fit fiscal and succession motives, whereas LBOs of former subsidiaries address management issues.

Suggested Citation

  • Anne-Laure Le Nadant & Frédéric Perdreau, 2006. "Financial Profile of Leveraged Buyout Targets: Some French Evidence," Post-Print halshs-00151826, HAL.
    • Handle: RePEc:hal:journl:halshs-00151826
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    References listed on IDEAS

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    1. Philippe Desbrières & Alain Schatt, 2002. "L'incidence des LBO sur la politique d'investissement et la gestion opérationnelle des firmes acquises:le cas français," Revue Finance Contrôle Stratégie, revues.org, vol. 5(4), pages 79-106, December.
    2. Phillippe Desbrières & Alain Schatt, 2002. "The Impacts of LBOs on the Performance of Acquired Firms: The French Case," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5‐6), pages 695-729.
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    Cited by:

    1. Anne-Laure Le Nadant & Frédéric Perdreau, 2011. "Do Private Equity Firms Foster Innovation? Evidence from French LBOs," Post-Print halshs-00773693, HAL.
    2. Patricia Crifo & Vanina Forget, 2013. "Think Global, Invest Responsible: Why the Private Equity Industry Goes Green," Journal of Business Ethics, Springer, vol. 116(1), pages 21-48, August.
    3. Anne-Laure Le Nadant & Frédéric Perdreau, 2011. "LBOs and innovation: the French case," Post-Print halshs-00669910, HAL.
    4. Dasilas, Apostolos & Grose, Chris, 2018. "The wealth effects of public-to-private LBOs: Evidence from Europe," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 179-194.

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