Leveraged Buyout Premium. Britain, France And The Three Private Equity Funds To Support The Analysis

Leveraged buyouts originated from America and experienced a spectacular boom in early 1980s. Meanwhile, the phenomenon raised a lot of doubts about the sources of value creation in both public and academic area. Leveraged buyouts in Continental Europe started quite late, but since 2000 the market witnessed a astonishing catch-up growth. However, until now, there isn't any relevant academic research focusing on the buyouts premiums in Continental Europe market, neither the comparisons among different jurisdictions. The focus of this paper is the buyouts premiums in Europe and comparison of national legal regime.The analysis of leveraged buyouts requires the insightful understanding of private equity industry which plays more and more important role in leveraged buyouts market. The recent changes of leveraged buyouts market also include the innovations of debt financing and the diversification and institutionalization of leveraged loans distributing channels.The analysis in this paper is based on the following two frameworks. The first framework is the participants and markets of leveraged buyouts and leveraged loans. And the second is the model built to identify the determinants of leveraged buyouts premiums. Eventually the combination of these two frameworks hinges on the analysis of two sets of independent variables. The first set of variables is effective tax rates and debt/equity ratios, and my findings do not support the tax benefits hypothesis, neither free cash flow hypothesis. But the samples from Continental Europe do support free cash flow hypothesis. The second set of variables is credit spreads and loan index. To the contrary of our original hypothesis, the results show that credit spreads variable positively correlates with buyouts premiums. Similarly, loan index negatively correlates with buyouts premiums. This paper also tries to exam other hypothesis, including management incentive, undervaluation and buyouts defense. To account for national discrepancies, this paper builds a platform to compare the tax and legal environments of the three countries.