A Study of the Characteristics of Firms Undergoing Leveraged Buyouts in Europe

Sammanfattning: In this thesis we examine the shared characteristics of companies that undergo leveraged buyouts from public markets in Europe between 2005-2015 and whether credit markets have an impact on these characteristics. This is done by conducting logistical regressions on public data and through interviews with industry professionals. Our results indicate that companies that undergo leveraged buyouts from public markets have low financial liquidity and are undervalued, while high free cash flow, potential tax savings and pre-acquisition debt levels were found to be insignificant. Credit markets are found to have a profound effect on the characteristics that are sought after by private equity firms, as the statistical analysis give different significant variables depending on the state of the credit market, which is in line with the interview results. In good credit markets, potential financial distress costs are higher for bought out companies than the control group, while in bad credit markets a strong growth potential and undervaluation are the significant characteristics. The interviews also showed that investment professionals focus more on qualitative aspects, e.g. competitive advantage, when evaluating an investment opportunity, while the financial characteristics play a subdued role