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This chapter investigates whether and to what extent tax benefits affect the likelihood of firms undertaking leveraged buyout (LBO) transactions.

With an identified sample of LBO firms and similar non-LBO counterparts, this chapter utilizes staggered changes in state corporate income tax rates as exogenous shocks and adopts a Logistic regression to analyze how these tax changes affect firms' probability of engaging in LBOs.

Firms are more likely to engage in LBOs after increases in corporate income tax rates. Specifically, the increase in the likelihood of firms undertaking LBOs following tax increases is between 6.9% and 12.9%. We also find that this positive relation is more pronounced for firms with higher levels of return on assets (ROA) and marginal tax rates (MTR). Finally, we report that the mean value of tax benefits accounts for between 28.5% and 170% of the premium paid to pre-buyout shareholders.

This chapter provides strong evidence that tax benefits constitute an important source of value creation in LBOs and adds to the debate regarding the role of tax benefits in LBOs.

The purpose of this paper is to examine the informational asymmetry (informational advantage of managers) in leveraged buyout (LBO) transactions.

Unlike previous studies of informational asymmetry in LBOs, this research uses a set of reverse‐LBO and re‐LBO firms. The paper proposes and empirically tests three hypotheses that draw on the informational advantage of managers in LBOs. Specifically, the value gain (VG) realized by the reverse‐LBO firms is compared with that realized by a control sample of firms; the wealth distribution between managers and pre‐buyout shareholders is studied; and, finally, the performance of re‐LBO firms relative to reverse‐LBO firms is evaluated.

The results do not support the view that managers use buyouts to exploit their informational advantage. Specifically; the performance of LBO firms under the private ownership is comparable to those of matching public firms; the management team's return in a LBO deal is not significantly more than pre‐buyout shareholders’ return; and repeating reverse‐LBO firms (re‐LBOs) do not necessarily perform better than the non‐repeating reverse‐LBO firms.

While reverse‐LBOs have been investigated to some extent in the prior literature, studies on re‐LBOs are quite scant – although these transactions offer a new and interesting avenue to examine the motivations behind LBOs in general. The use of the entire LBO − reverse‐LBO − re‐LBO cycle in testing the informational advantage of managers is a novelty. It is hoped that re‐LBOs will attract the amount of attention they deserve as these firms may offer interesting means to reinvestigate commonly debated theories of corporate finance.

The purpose of the study is to explore the board of directors in leveraged buyouts (LBOs) as a distinct source of value creation and to conceptually investigate the going‐private transaction via LBO as a response to deficient governance structures as well as the post‐buyout board restructuring.

The paper provides a review of the literature on LBOs boards, and relies on agency theory and the resource dependence perspective to develop testable propositions. The work suggests that the board as a particular source of efficiency gains in LBOs warrants further empirical research.

The paper gives strong credence to the argument that boards represent a unique source of value creation in LBOs. Previous agency‐theoretic work is complemented by focusing on the monitoring function of the board, but resource dependence theory introduced to suggest the importance of a strategic service and support function. The work is conceptual in nature and thus requires subsequent empirical testing to verify assertions set forth in this study.

The paper shows that incentives of managerial equity participation and the discipline of debt are gradually losing their distinctiveness in today's buyout industry. To compete in an increasingly crowded environment, LBO specialists need to identify new sources of value to generate attractive returns for their investors.

The paper extends the existing LBO literature by introducing resource dependent as a complementary framework. Given that the traditional LBO literature examines the discipline of debt and managerial ownership that explain their efficiencies, the role of LBO boards as a distinct value creation mechanism in buyouts is introduced.

The purpose of this paper is to extend the research on private equity by studying the drivers of leveraged buyout (LBO) operating performance in Latin America. The authors consider a large set of candidate drivers (financial, governance, macroeconomic and industry variables) and study their effects on performance over short- and long-terms.

To conduct this study, the authors used Capital IQ as a database as well as a hand-collected data set covering LBO in Latin America from 2000 to 2008.

The empirical results show that macroeconomic variables have an important impact on LBO value creation. Governance variables show also that LBO transactions reduce information asymmetries between existing and new management teams. Consequently, a concentrated shareholder structure has a better impact on performance than diluted stockholders. Financial variables present significant effects after the delisting.

The characteristics of the debts included in the balance sheets (maturity for example) are not available in the authors' data basis. A test including this information could bring other elements of explanation. The measure of cumulative abnormal returns around going-private announcements and their impacts on shareholder’s value could also be of interest. This last study has been published for the UK (Wright et al., 2006). Further research should introduce other continents and particularly Asia in the analysis but also comparisons between the Brazil–Russia–India–China–South Africa (BRICS) countries.

This study makes five main contributions. First, the authors construct an LBO sample with emerging markets and specially Latin America. It is the first time that an academic article has been realized. Data are very difficult to obtain to do empirical tests. Latin America is a part of emerging markets, which is an interesting study subject due to their attractiveness in terms of growth of private equity funds. Second, to understand clearly how LBOs create value, the authors construct a sample control to highlight the key factors. Criteria of size, sector of activity and Standard Industrial Classification (SIC) codes were strictly enforced. Third, the authors do not focus on the moment where the transaction is realized like many studies but before and after the delisting. Indeed, they observed, on the one hand, the operating performance between year −1 and year +1 and, on the other hand, the operating performance between year −1 and year +3. Generally, only the market reaction around the acquisition announcement is examined. Post-performance is not considered due to lack of data. Fourth, the authors take into account the macroeconomic effects on performance of LBOs. It is the first examination of the impact of macroeconomic factors on performance of LBOs in Latin America. And fifth, they analyze the impact of going-private decisions on employees.

This paper aims to investigate how the passage of the Sarbanes Oxley Act (SOX) impacted the likelihood and timing of the decision of leveraged buyout (LBO) firms to exit via initial public offering (IPO) (reverse-LBO) and the mediating effect of reputed private equity (PE) firms.

The sample comprises firms that went private via LBO between 1990 and 2018. The authors use logistic and ordinary least square regression models to compare the effect of SOX on the re-listing decision and the time taken to re-list.

LBO firms were less likely to exit via public offering after SOX, and the time from LBO to IPO was significantly longer for exiting firms post-SOX. PE firm reputation partially reversed the reluctance to exit via IPO and shortened the time to exit.

The primary focus is RLBOs; the authors do not directly examine other methods of LBO exit. The findings have policy implications for unintended impacts of SOX. Despite the benefits of increasing transparency and protecting investors, SOX reduced the likelihood of going public and increased the time to IPO, potentially reducing product market competition.

RLBOs present a unique experimental setting as the authors can test the impact of SOX on both the likelihood and time to go public, whereas prior literature using first-time IPO samples are able to test only the likelihood. The authors also show that the reputation of the advising PE firm attenuates the reluctance and time taken for RLBOs to re-list. The authors are, thus, able to provide a new perspective on the impact of SOX on the going public decision.

The purpose of this paper is to compare the governance structures of two distinctive governance forms: the family firm and the leveraged buyout (LBO). The paper also explores the relative performance of these two organizational forms over the course of the economic business cycle.

The paper provides a theoretical treatment of the family firm and the LBO using the stewardship perspective and agency theory. The analysis anticipates the board structure for each organizational form and relates family firm and LBO governance to performance over the business cycle.

From a conceptual treatment, the family‐owned concern exhibits board characteristics reflecting the longer‐term orientation of the firm, with boards empowered to include non‐economic, as well as economic, goals. LBOs are structured to maximize shareholder value over a shorter time horizon. LBOs may take advantage of expansionary environments whereas family firms may be better prepared for economic down‐cycles.

The paper takes a holistic approach to contrasting two organizational forms that fit their respective theoretical frames and compares some of their more salient governance characteristics and performance over the business cycle.

Managers and boards can structure governance to manage the business cycle. Stakeholders can selectively engage firms that portray vital governance characteristics for their benefit and may also pressure boards and top management to make necessary governance improvements.

The paper offers an introductory comparison between family firms and LBOs in terms of governance and managing the firm over the business cycle. This paper makes the case that some organizational forms are better suited to certain types of economic climates.

Corporate takeovers have become a prominent feature of global business. Merger and acquisition activity in the United States alone climbed from $32 billion in 1980 to $300 billion in 1988, an annual rate of increase of 32 percent. The individual size of these transactions has reached an all‐time high. Any company, whatever its size, may be vulnerable as a target.

During the last five years, Safeway and Fairchild Industries sold major divisions to existing management. Carl Icahn acquired a majority interest in TWA. And, entrepreneur Ted Turner attempted unsuccessfully to acquire CBS. The common factor in these transactions? The leveraged buyout (LBO).

Management′s perception towards buyouts, the impact that various forms of the buyout are having on the marketplace, and how buyout popularity effects the economy are discussed. The buyout has also become a popular alternative for entrepreneurs, who in the past have founded companies rather than buying existing firms. The advantages that buyouts offer the entrepreneur compared to the traditional approach are also discussed. A survey of managers who have been involved in buyouts is discussed and correlated to current literature involving the new entrepreneur and his/her involvement in the buyout phenomenon.

This case focuses on valuation using various methods to price a firm. Students attempting this case should know the basics of how to value a company using discounted cash flow, comparable multiples and comparable transactions. Students will need to calculate the weighted average cost of capital using comparable companies and the capital asset pricing model and determine differences in value created by an acquisition vs a leveraged buyout (LBO). The case also discusses qualitative issues in mergers, such as fit between target and acquirer, integration issues, potential high debt from LBO.

This case was library-researched, using Amazon and Whole Foods public filings and business press papers.

Whole Foods Markets received a buyout offer from Amazon. Whole Foods could solicit offers from other firms, including firms more directly in the grocery business. Whole Foods also considered a management buyout or purchase by a private equity firm. Whole Foods had underperformed, with a falling stock price and reduced profitability. Amazon’s bid was attractive, a premium of about 40 per cent over Whole Foods’ pre-merger stock price. Whole Foods also wanted to consider issues such as culture. Whole Foods’ strategy was to sell organic foods at premium prices, while Amazon was a retail discounter with a largely online business.

This case is appropriate for graduate students at the end of their introductory course or for graduate or undergraduate students in a corporate finance elective, particularly a merger/restructuring elective. The case has been used in an advanced undergraduate finance elective, with a team presenting the case to the class, with remaining students in the class required to write case summaries and questions for the presenting group.