The Performance of Reverse Leveraged Buyouts -An Agency Perspective: An Empirical Analysis of the Public-to-private, Divisional and Private-toprivate RLBOs

Abstract

Since the first LBO wave hit the public markets in the start of the 1980s, relatively little attention in systematic studies have been paid to the long-run performance of LBOs after the IPO. As the ownership disperses and leverage decreases following the IPO, mitigated agency costs could be expected to reappear. Hence, the agency perspective could be assumed to be an appropriate model to explain the post-IPO performance of LBOs. We carry out an extensive investigation to measure the ex-post IPO performance of reverse leveraged buyouts (a firm that has been acquired through a leveraged buyout and subsequently taken public). Studying a comprehensive sample of 197 public-to-private, 240 divisional and 349 private-to-private (which of 72 are European) RLBOs from 1980-2015, we compare them to each other, classic IPOs, and an industry-matched sample. For this purpose, we apply the event study methodology and track the abnormal operating and stock performance after the IPO. Next, to assess the explanatory power of the agency perspective, we conduct cross-sectional regression analyses. Our results are summarized as follows: (1) The public-to-private and divisional RLBOs consistently outperform the classic IPOs and the industry-matched sample in the long-term. (2) The private-toprivate RLBOs outperform the public-to-private and divisional RLBOs in the short-term and underperform in the long-term. (3) The public-to-private and divisional RLBOs operating performance deteriorates after one-year following the IPO, while the private-to-private RLBOs declines after the IPO. (4) Public-to-private and private-to-private RLBOs held private for a short period underperform. (5) RLBOs listed after the year 2000 appear to perform superior compared to those listed in the 1990s and 1980s. (6) RLBOs listed by the three most active buyout funds in our sample outperform. (7) Finally, European RLBOs perform significantly worse than American. Cross-sectional regression analysis shows a significant negative association between performance and the change in leverage and the largest shareholder’s ownership and a positive association between performance and the management’s ownership. As such, the agency perspective can only to some degree be applied to explain the ex-post IPO performance of the RLBOs.