Lifting the Veil on Reverse Leveraged Buyouts: What Happens During the Private Period?

Authors

  • Sudip Datta,

    Search for more papers by this author
    • Sudip Datta is the T. Norris Hitchman Endowed Chair and Professor of Finance in the School of Business Administration at Wayne State University in Detroit, MI. Mark Gruskin is an Assistant Professor of Finance at Penn State – Lehigh Valley in Center Valley, PA. Mai Iskandar-Datta is the Dean's Research Chair, Board of Visitors Faculty Fellow, and Professor of Finance in the School of Business Administration at Wayne State University in Detroit, MI.

  • Mark Gruskin,

  • Mai Iskandar-Datta


  • We thank Josh Lerner, Raghu Rau (Editor), and an anonymous referee for valuable suggestions.

Abstract

We document the different types of restructuring activities undertaken during the private period after the reverse leveraged buyout (RLBO) of previously public firms. Preceding the LBO, firm leverage significantly exceeds that of their peers, while their profitability is better than the industry. However, despite their superior performance, these firms are undervalued before going private. While private firms undertake value-enhancement measures by increasing employee productivity, asset restructuring, decreasing cost of goods sold, and increasing ownership concentration. Enhanced valuation at the RLBO is a result of value capture, as well as efficiencies obtained from restructuring activities. We also identify factors determining the private period duration.

Ancillary