Authors: Apostolos Dasilas, Chris Grose

Title: Going Private through LBOs: Empirical Evidence from Europe

Abstract

This paper examines public-to-private leveraged buyouts (LBOs) in Europe. Based on a sample of 127 deals during the period 1998-2011 we probe into the short-term reaction of stock prices around the deal announcement day by calculating abnormal returns for the pre-buyout shareholders of the target firm. Our study confirms that LBO announcements are sources of significantly positive abnormal returns. Target companies’ market of domicile elicits a significant effect on the magnitude of these returns since in markets with stronger overall corporate governance mechanisms abnormal returns appear to be more notable. Cash rich, undervalued targets also appear to rip greater short-term price benefits from LBOs announcements while the same applies for club LBOs relative to sole sponsored ones. Through logistic regression we also detect the characteristics that render target companies more prone to takeovers with mature businesses with cash flow stability and low capital expenditures proving to be most likely LBO targets.