Understanding Value Generation in Buyouts

Buyouts have been described as a specific form of financial acquisition that leads to potentially substantial, but also highly volatile returns to equity investors. Previous research has illustrated a number of mechanisms through which buyouts cause increases or decreases in company value. While it is important to understand the performance impact of each of these levers individually, we are still missing a comprehensive framework that captures the full complexity of the buyout value generation process and recognizes interdependencies between various factors. In this paper, the authors develop a three-dimensional conceptual framework for value generation in buyouts that categorizes and links the different levers of buyouts value generation. This framework provides the basis to take a look beyond individual value levers and shed light on the underlying strategic logic of buyouts. They then review the literature on buyouts and categorize previously identified levers of value generation according to our framework. At the same time, they identify a number of levers that have received little attention in the academic literature so far or still lack convincing empirical support for their performance impact. Building upon this assessment of the status quo in research in buyout value generation, they outline an agenda for future research.