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Leveraged Buyouts: Motives and Sources of Value

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  • Renneboog, Luc
  • Vansteenkiste, Cara

Abstract

This paper provides an exhaustive literature review of the motives for public-to-private LBO transactions. First, the paper develops the theoretical framework for the potential sources of value creation from going private: a distinction is made between the reduction in agency costs, stakeholder wealth transfers, tax benefits, transaction costs savings, takeover defense strategies, and corporate undervaluation. The paper then reviews and summarizes whether and how these theories have been empirically verified in the four different strands of literature in LBO research. These strands of literature are categorized by phase in the LBO transaction. Intent (of a buyout), Impact (of the LBO on the various stakeholders), Process (of restructuring after the leveraged buyout) and Duration (of retaining the private status). Then, the paper shows that in the first half of the 2000s, a public-to-private LBO wave re-emerged in the US, UK and Continental Europe, whose value vastly exceeded that of the 1980s US LBO wave. Finally, the paper provides suggestions for further research.

Suggested Citation

  • Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts: Motives and Sources of Value," Annals of Corporate Governance, now publishers, vol. 2(4), pages 291-389, June.
    • Handle: RePEc:now:jnlacg:109.00000017
    DOI: 10.1561/109.00000017
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    References listed on IDEAS

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    1. Zahra, Shaker A., 1995. "Corporate entrepreneurship and financial performance: The case of management leveraged buyouts," Journal of Business Venturing, Elsevier, vol. 10(3), pages 225-247, May.
    2. Nick Wilson & Mike Wright, 2013. "Private Equity, Buy-outs and Insolvency Risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 40(7-8), pages 949-990, September.
    3. Karen H. Wruck, 1991. "What Really Went Wrong At Revco?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(2), pages 79-92, June.
    4. Mike Wright & Ken Robbie & Steve Thompson & Ken Starkey, 1994. "Longevity and the life‐cycle of management buy‐outs," Strategic Management Journal, Wiley Blackwell, vol. 15(3), pages 215-227, March.
    5. Wilson, Nick & Wright, Mike & Siegel, Donald S. & Scholes, Louise, 2012. "Private equity portfolio company performance during the global recession," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 193-205.
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    More about this item

    Keywords

    Public-to-private transactions; Going-private deals; Private equity; Management buyout; Leveraged buyout; Management buy-in; MBO; LBO; reverse LBO;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • 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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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