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Growth LBOs

Author

Listed:
  • Quentin Boucly

    (HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales)

  • David Sraer

    (Department of economics - Princeton University)

  • David Thesmar

    (CEPR - London Business School)

Abstract

Using a data set of 839 French deals, we look at the change in corporate behavior following a leveraged buyout (LBO) relative to an adequately chosen control group. In the 3 years following a leveraged buyout, targets become more profitable, grow much faster than their peer group, issue additional debt, and increase capital expenditures. We then provide evidence consistent with the idea that in our sample, private equity funds create value by relaxing credit constraints, allowing LBO targets to take advantage of hitherto unexploited growth opportunities. First, post-buyout growth is concentrated among private-to-private transactions, i.e., deals where the seller is an individual, as opposed to divisional buyouts or public-to-private LBOs where the seller is a private or a public firm. Second, the observed post-buyout growth in size and post-buyout increase in debt and capital expenditures are stronger when the targets operate in an industry that is relatively more dependent on external finance. These results contrast with existing evidence that LBO targets invest less or downsize.

Suggested Citation

  • Quentin Boucly & David Sraer & David Thesmar, 2011. "Growth LBOs," Post-Print hal-00632110, HAL.
    • Handle: RePEc:hal:journl:hal-00632110
    DOI: 10.1016/j.jfineco.2011.05.014
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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