Understanding Value Generation in Buyouts


Journal of Restructuring Finance

2005, vol. 2, n°1, pp.9-37

Départements : Stratégie et Politique d’Entreprise, GREGHEC (CNRS)

Buyouts have been described as a specific form of financial acquisition that leads to potentiallysubstantial, but also highly volatile returns to equity investors. Previous research has illustrateda number of mechanisms through which buyouts cause increases or decreases in company value.Besides the traditional mechanisms like improved governance or incentive systems, more innovativeand entrepreneurial levers like increasing strategic distinctiveness and mentoring areexamined. While it is important to understand the performance impact of each of these leversindividually, we are still missing a comprehensive framework that captures the full complexity ofthe buyout value generation process and recognizes interdependences between various factors.In this paper, we develop a three-dimensional conceptual framework for value generation inbuyouts that categorizes and links the different levers of buyouts value generation. This frameworkprovides the basis to take a look beyond individual value levers and sheds light on theunderlying strategic logic of buyouts. We then review the literature on buyouts and categorizepreviously identified levers of value generation according to our framework. At the same time,we identify a number of levers that have received little attention in the academic literature sofar or still lack convincing empirical support for their performance impact. Building upon thisassessment of the status quo in research in buyout value generation, we outline an agenda forfuture research