Value Creation in Leveraged Buyouts

Over the last years, buyout activity has risen dramatically - especially in Europe - sparking intense public discussion about financial investors' role and the value they can add to companies and the overall economy.

Based on a dataset of more than 3,000 leveraged buyout transactions from the U.S. and Europe, including performance data, Nicolaus Loos analyses how financial investors create economic value through their investments. Using quantitative analysis, he shows that various exogenous factors with respect to timing, industry, public market as well as deal specific factors can statistically be related to a buyout deal's performance. He also provides evidence of a "GP effect" in leveraged buyouts, i.e. that certain characteristics of a Private Equity firm and its investment professionals as well as a firm's buyout strategy approach and certain buyout target characteristics are important success factors.

Autorentext
Dr. Nicolaus Loos promovierte bei Prof. Dr. Martin Hilb am IFPM Institut der Universität St. Gallen und forschte am Buyout Research Center am INSEAD. Er ist als Investment Banker für den Bereich Private Equity bei J.P. Morgan in New York, USA tätig.

Zusammenfassung
The academic and public discussion about Private Equity and Buyout firms and their current acquisition frenzy has once again reached a climax in recent months. The reasons are twofold: Firstly, the flexibility and sophistication of Private Equity investors, as well as the capital markets serving them, has increased dramatically over the recent years. The current availability of funds to be invested by Private Equity manag­ ers is enormous, estimated to be over $150 billion. Equity and debt is raised from institutional investors, pension funds and other asset managers who are keen to put their money to work in high-yielding investment areas and who continue to be highly receptive to Private Equity following a strong recent return track re­ cord of this asset class. Relatively cheap lending levels based on stable global economic outlook, as well as a much lower than historical level of default rates among buyouts has led banks to increase their risk appetite noticeably. Conse­ quently, lending banks are offering significant additional financing sources to Private Equity investor clients. The year 2005 has been a record year in the in­ dustry in terms of overall deal volume including 845 leveraged buyout transac­ tions totalling $198 billion in transaction value globally. This is in addition to a record $448 billion in leveraged loans being raised in the global capital markets. Buyout deal sizes have reached new heights with 45% of U. S.

Inhalt
Literature Review.- Methodology and Research Design.- Empirical Part I Market and Financial Value Drivers.- Empirical Part II The GP Firm and Manager Effect.- Empirical Part III Buyout Strategies.- Summary and Conclusions.