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After The Mega-Buyout Era: Do Public-to-Private Transactions Still Outperform?

By Bryn Wilson

This thesis contributes to existing knowledge of the private equity asset class by examining whether public-to-private leveraged buyouts outperform public peers before and after the mega-buyout era (2005 – 2007). This paper considers the impact of four groups of value drivers on both market- and peer-adjusted returns. These value drivers include operational improvements, leverage, multiple expansion and market timing, and management and corporate decision making. I analyze how these factors change over time, aiming to determine whether public-to-private target firms improve profitability, return on assets, and investment more than peers. I also examine how employment changes at target firms relative to peers. Multivariable regression analysis is used to quantify the impact of operating performance changes, leverage, multiple expansion, credit market conditions, GDP growth, and management and corporate decisions on market- and peer-adjusted returns. The paper constructs a sample of 227 public-to-private transactions from 1996 – 2013 and analyzes 74 transactions with post-buyout financial information available. Results suggest that private equity ownership post-buyout does not lead to significant operational improvements relative to peers, but that improving profitability and ROA are crucial to outperforming the market and peers.

Dr. Connel Fullenkamp, Faculty Advisor

JEL classification: G3; G34; G32; G11

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Determining the Drivers of Acquisition Premiums in Leveraged Buyouts

By Peter Noonan   

This thesis analyzes factors that determine acquisition premiums paid by private equity firms in public to private leveraged buyouts. Building off of established literature that models the acquisition premiums paid in corporate mergers and acquisitions (M&A), this paper considers factors that influence a private equity firm’s willingness to pay (referred to as reservation price) and the bargaining power dynamic between a target company and acquirer in leveraged buyouts. Specifically, multivariable regression analysis is used to quantify the impact of a target company’s trading multiple, profitability, stock price as a percentage of its annual high, and number of competitors, a private equity firm’s deal approach and payment method, and the financial market’s 10-year US Treasury yield and high-yield interest rates at the time a transaction was announced. A sample of 320 public to private leveraged buyout transactions completed from 2000 to 2020 is constructed to perform this paper’s regression analysis. Using 2008 as an inflection point, this thesis then applies the same regression model to the subperiods from 2000–2008 and from 2009–2020 to examine how these drivers have changed as a result of industry trends—increased competition, low interest rates, and new value creation investment strategies—as well as the 2008 financial crisis and US presidential election—two crucial events that caused tremendous change in the financial system and intense scrutiny of the private equity industry. From the same original transaction screen, a second sample of 659 transactions is used to perform a difference of acquisition premium means t-test to analyze how the absolute magnitude of leverage buyout acquisition premiums have changed across these two subperiods. The second sample consists of more transactions due the t-tests less data-demanding nature as a result of its fewer variables. Results of this paper’s baseline model suggest that acquisition premiums are driven by a target company’s…

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Advisors: Professor Ronald Leven, Professor Michelle Connolly | JEL Codes: G3, G11, G34


Undergraduate Program Assistant
Matthew Eggleston

Director of the Honors Program
Michelle P. Connolly