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What determines the exit decision for leveraged buyouts?

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  • Jenkinson, Tim
  • Sousa, Miguel

Abstract

How and when to exit portfolio company investments are critical choices facing private equity funds. In this paper we analyze 1022 European private equity exits, using information on fund and portfolio company characteristics, and on conditions in capital markets. For over 43% of the exits, private equity funds sold to each other and we analyze why such secondary buyouts have gained in popularity relative to IPOs and sales to corporate acquirers. We find that the exit route depends on various portfolio company characteristics, and that conditions in the debt and equity markets have a strong influence on exit choice. The existing literature has tended to portray the IPO is the “preferred” exit route. However, our analysis suggests this is mistaken: private equity funds take advantage of ‘windows of opportunity’, and the exit route that maximizes value varies with market conditions.

Suggested Citation

  • Jenkinson, Tim & Sousa, Miguel, 2015. "What determines the exit decision for leveraged buyouts?," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 399-408.
  • Handle: RePEc:eee:jbfina:v:59:y:2015:i:c:p:399-408
    DOI: 10.1016/j.jbankfin.2015.06.007
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    References listed on IDEAS

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    Cited by:

    1. repec:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0874-4 is not listed on IDEAS
    2. K.S. Reddy & En Xie & Yuanyuan Huang, 2016. "Contractual buyout - a legitimate growth model in the enterprise development: foundations and implications," International Journal of Management and Enterprise Development, Inderscience Enterprises Ltd, vol. 15(1), pages 1-23.
    3. repec:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0886-0 is not listed on IDEAS
    4. repec:eee:corfin:v:45:y:2017:i:c:p:31-63 is not listed on IDEAS

    More about this item

    Keywords

    Secondary buy-out; Exits; Private equity;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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