Do Buyouts (Still) Create Value?
Article first published online: 21 MAR 2011
© 2011 the American Finance Association
The Journal of Finance
Volume 66, Issue 2, pages 479–517, April 2011
How to Cite
GUO, S., HOTCHKISS, E. S. and SONG, W. (2011), Do Buyouts (Still) Create Value?. The Journal of Finance, 66: 479–517. doi: 10.1111/j.1540-6261.2010.01640.x
- Issue published online: 21 MAR 2011
- Article first published online: 21 MAR 2011
We examine how leveraged buyouts from the most recent wave of public to private transactions created value. Buyouts completed between 1990 and 2006 are more conservatively priced and less levered than their predecessors from the 1980s. For deals with post-buyout data available, median market- and risk-adjusted returns to pre- (post-) buyout capital invested are 72.5% (40.9%). In contrast, gains in operating performance are either comparable to or slightly exceed those observed for benchmark firms. Increases in industry valuation multiples and realized tax benefits from increasing leverage, while private, are each economically as important as operating gains in explaining realized returns.