Value Generation in Leveraged Buyouts 1989 - 2005

Abstract: This master’s thesis analyses the value generation in LBOs performed by four of the leading private equity firms active in the Swedish market. The thesis, which is based on a highly unique data sample of 72 LBOs taking place between 1989 and 2005, decomposes the value generation into value creation, value capturing and leverage. The mean money multiple in the sample is 4.9 and the average gross IRR is 65 percent. All of the chosen factors of value generation have a significant positive contribution to the value generation, and out of these factors, value capturing has the least impact. The statistical analysis could not support the hypothesis of value creation being the single most important contributor to value generation over the entire sample period. However, we argue that this to some extent is caused by errors in our measure which lead us to underestimate the importance of value creation. Finally, we found that the total value generation and value capturing have decreased over time and that value creation has increased in importance over time.