An Empirical Analysis of the Relation between the Leverage Levels of Private Companies and Leveraged Buyouts and their Leverage Determinants

Abstract: This paper makes an empirical comparison of leverage levels for Leveraged Buyouts (LBOs) and private companies. We match groups of private companies to recent European LBO transactions and construct a second partly overlapping sample where we match LBO transaction leverage data to their pre-LBO values. In a one-variable regression we find no relation between the leverage levels between private companies and LBOs. However, we do find a relation between pre-LBO and LBO leverage, if leverage is measured as Debt/EBITDA. Analyzing the leverage determinants we find that company characteristics play an important role in the leverage decisions of both the private and the pre-LBO companies, whereas credit market conditions seem to be the most important factor in LBO leverage decisions. The conclusion is in line with previous findings that LBOs take other factors into consideration in their leverage decisions than do non-LBO companies.