Determinants of Leverage Buyout Targets: Evidence from European Markets

Jakob Krantz & Axel Gustafsson

Student thesis: Master thesis

Abstract

This thesis investigates why certain firms become leverage buyout targets by analysing what firm characteristics act as determinants of the going-private decision. This is done by studying 294 European LBO targets between the years 2000-2018 and contrasting them to a group of firms that were not taken private. Our findings show that firms with high free cash flows and low growth prospects are more likely to become LBO targets and that the tax benefit from leverage may also be an important determinant of LBO like-lihood. Undervaluation and financial visibility are not found to significantly impact the going-private decision. To assess the logit model’s predictive accuracy, an investment strategy is formed based on estimated acquisition probability in a hold-out sample. Our prediction classifies 16 out of 22 tar-gets correctly but misclassifies a vast number of non-targets as targets. Due to this misclassification, it is concluded that the model’s prediction does not beat the market.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2020
Number of pages87
SupervisorsYanlei Zhang