REVERSE LEVERAGED BUYOUT RETURN BEHAVIOR: SOME EUROPEAN EVIDENCE
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This study investigates the stock performance of reverse leveraged buyouts (RLBOs) before, during, and
after the global financial crisis. An RLBO consists of the return to public investors (i.e. the offering of stocks
to the public) of a company that had gone private after a leveraged buyout (LBO) led by a private equity fund. The
value created by an RLBO resides in the changes brought by the LBO fund while it owns the company. After a
“repackaging” of the bought company, the private equity fund sells the company’s shares to the public. Most of
the research on this topic, based on RLBOs that occurred between 1980 and 2005 in the US, has shown that RLBOs
outperform their peers (i.e. other IPOs) and outperform the market after going public again. Focusing on RLBO
companies in Europe in the financial crisis era, this study investigates whether they also outperform other IPOs
and the market. The study is based on a sample of 421 IPOs occurring between 2001 and 2011 in France, Germany and
the UK, of which 52 are RLBOs. We examine RLBO performance one day, one month, one year and three years after the
offering. We also use event study methods to investigate the impact of the global financial crisis on RLBO
performance. We find that European RLBOs outperform both their peers (i.e. “classic” IPOs) and the market during
the period studied. This outperformance does not diminish in the long-term. The global financial crisis appears to
have affected RLBO performance, which weakened between 2007 and 2009, though RLBOs still outperformed the market.
In addition, multivariable regressions were used to examine various extant explanations for RLBO outperformance.
This analysis did not support any of the prevailing theories. In particular, the value created by RLBOs does not
appear to be linked to LBO duration, sponsor reputation, or to the level of leverage employed. There is no evidence
of time or industry effects. Moreover, RLBO performance shows no correlation with market capitalization. The
explanation of why RLBOs outperform both other IPOs and the market continues to be a puzzle. Further theoretical
elaboration is required.