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Value Creation in Leveraged Buyouts

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The following thesis discusses the primary drivers of value creation in a leveraged buyout. Value creation is defined by two broad criteria: enterprise value creation and financial value creation. With enterprise value creation, the company itself may be improved, which in turn may have positive implications on the economy at…

The following thesis discusses the primary drivers of value creation in a leveraged buyout. Value creation is defined by two broad criteria: enterprise value creation and financial value creation. With enterprise value creation, the company itself may be improved, which in turn may have positive implications on the economy at large. As the analysis of enterprise value creation is outside the scope of publicly available information and data, the core focus of this thesis is financial value creation. Financial value creation is defined as the financial returns to a given private equity firm. Amongst this segment of value creation, there are roughly three primary categories responsible for generating returns: financial engineering, governance improvements, and operational improvements. The attached literature review and subsequent chapters of this thesis discuss the academic drivers of value creation and the outputs of a leveraged buyout model conducted on a public company, Schnitzer Steel, that has been determined to be an ideal candidate for a buyout.
ContributorsAlivarius, Chadwick (Author) / Simonson, Mark (Thesis director) / Stein, Luke (Committee member) / Department of Finance (Contributor) / Department of Economics (Contributor) / Dean, W.P. Carey School of Business (Contributor) / Barrett, The Honors College (Contributor)
Created2019-05
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Private Equity: The Long-Run Impact of Reverse Leveraged Buyouts on Portfolio Companies

Description
Reverse leveraged buyouts (RLBOs) are a common practice for private equity firms across the globe and have been on the receiving end of public scrutiny. While the performance of RLBOs has been studied in the past, very few if any works have been published concerning the specific results of reverse…

Reverse leveraged buyouts (RLBOs) are a common practice for private equity firms across the globe and have been on the receiving end of public scrutiny. While the performance of RLBOs has been studied in the past, very few if any works have been published concerning the specific results of reverse leveraged buyout transactions performed by the largest private equity mega-funds specifically. We collected a dataset of 22 transactions and conducted quantitative and qualitative analysis on 18 of the aforementioned transactions in order to determine the magnitude of positive effects that RLBOs had on each company. Less than half of mega-fund RLBOs that had an initial public offerings outperformed the Dow Jones Industrial Average on a compound annual growth (CAGR) basis, post-exit. Even less outperformed the S&P 500 index, and substantially less than that outperformed industry averages. It can clearly be seen that while averages dictate that large scale RLBOs do not seem profitable, there is a noticeable disparity between the success and failure of each deal when looking at price performance. This data makes the argument that while RLBOs are difficult to make successful, if the market receives them well then they can be some of the highest returning transactions.
ContributorsKaye, Steven (Co-author) / Chavez, Aaron (Co-author) / Aragon, George (Thesis director) / Stein, Luke (Committee member) / Department of Finance (Contributor) / Barrett, The Honors College (Contributor)
Created2016-05