Leverage Buyout Attractiveness

This paper examines the effect of several financial characteristics of publicly traded companies on the probability they go private due to a Leverage Buyout by Private Equity funds. This is done by an analysis of descriptive statistics and the use of a logistic regression model containing data of 1948 US listed firms of which 227 were target of a LBO in the period 2001 till 2007.The incentive realignment theory and the financial distress theory are used to construct variables that increase or reduce the probability a public company goes private. The mean comparison of firm specific financial components shows significant differences in profitability, growth and financial management, suggesting that private equity companies chose their LBO target firm with the use of financial information about it. The logistic regression results report significant positive effects for firms that have high operating income, low cash flow combined with high Tobin’s q and are diversified combined with a low Tobin’s q. It also reports significant negative effect for companies that have high selling expenses, are diversified and have a large asset value.