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Leverage and Pricing in Buyouts: An Empirical Analysis

Ulf Axelson, Tim Jenkinson (), Per Strömberg and Michael Weisbach ()

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: This paper provides an empirical analysis of the financial structure of large recent buyouts. We collect detailed information of the financings of 153 large buyouts (averaging over $1 billion in enterprise value). We document the manner in which these important transactions are financed. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by other factors than what explains leverage in public firms. In particular, the economy-wide cost of borrowing seems to drive leverage. Prices paid in buyouts are related to the prices observed for matched firms in the public market, but are also strongly affected by the economy-wide cost of borrowing. These results are consistent with a view in which the availability of financing impacts booms and busts in the private equity market.

Keywords: Private equity; capital structure; buyouts (search for similar items in EconPapers)
Pages: 45
Date: 2008
New Economics Papers: this item is included in nep-fmk
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