Divisional Reverse Leveraged Buyout

Abstract

We examine the hypothesis that the leveraged buyout improves the operating performance of units that are divested from corporations. To do so, we focus on an historical sample of Divisional Reverse Leveraged Buyout (D-RLBO) and compare it with a matched sample of spinoffs We find that prior to divestiture, the D-RLBO units in our sample were healthier than the divested units that were spun off. Furthermore, although the finishing school of leveraged buyout did not improve the operating performance of the D-RLBO units, relative to the matched spinoff sample these units performed well in terms of market returns one-year following the IPO. Our results suggest that buyout specialists selected better performing assets ex-ante and that they did not necessarily enhance their operating performance before bringing them up to the public markets.