Leveraged Buyouts Between 2005-2007

Open Access
Author:
Gorgonzola, Benjamin David
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Chris Muscarella, Thesis Supervisor
  • James Alan Miles, Honors Advisor
Keywords:
  • Leveraged
  • Buyout
  • Private Equity
Abstract:
A Leveraged Buyout (LBO) is the purchase of a company, typically a publicly held one, with a large amount of debt financing used to take a publicly held company private. This is typically conducted by Private Equity firms seeking to create more profits out of a company and generate greater positive cash flows than what is currently being seen in the company’s reports. This paper is going to examine the success of these buyouts over the past several years. In order to check the success of these firms, paired t-tests were done on 10 firms in the pre- and post-buyout environment, as well as testing them against similar industry competitors. These tests helped to prove that there was strong statistical evidence to suggest that the LBO deal played a role in causing the target firms to deviate strongly from the common market. For the most part, this was a negative net impact, leaving the targeted firms weaker and more welcome to financial distress when the financial crisis took hold in late 2008.