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Why Private Equity Investors Buy Dear or Cheap in European Leveraged Buyout Transactions
Credit and Capital Markets – Kredit und Kapital, Vol. 39 (2006), Iss. 3 : pp. 397–417
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André Betzer, Bonn
References
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Abstract
In this study the reasons why Private Equity-Firms take European companies private via leveraged buyout are examined. The data set comprises 73 LBOs from 1996 to 2002 in Europe. Findings from the multivariate regression strongly indicate that acquirers mainly look for target firms that experienced a poorly performing share price before the announcement of the acquisition. Furthermore, PE-Firms pay significantly more for companies with a scattered shareholding structure and a therefore weak monitoring of the management. Premiums in the UK where the common law is applied are significantly higher than in Continental Europe where civil law prevails. These findings are new in the context of the Leveraged Buyout literature and therefore broaden the empirical evidence found in the American markets of the 1980s. (JEL G34)