Can LBOs in the U.S. Manufacturing Industry Be Predicted Using Financial Ratios?: A Logit Model Approach

Sammanfattning: In acquisition prediction modeling, taking into account the relationship between target and acquirer as well as correctly establishing the holdout sample seems to have implications for the results. In a Logit model, using a sample of Private Equity initiated LBO transactions in the U.S. Manufacturing Industry 1997-2006, accounting for survivorship bias in the calibration sample (and hold-out sample) as well as using industry relative ratios; we correctly classify 97.5 percent of the companies in a multiyear hold-out sample and achieve a positive predictive value of 57.69 percent. Receivables to Payables, and Size are found to be the most explanatory factors, where Receivables to Payables is a new ratio in acquisition prediction modeling. Further, some support for the Control Hypothesis is found.