A Study on the Relationship Between Leveraged Buyouts and Profitability

Abstract

This article delves into the profitability of post-buyout subsidiaries resulting from Leveraged Buyouts (LBOs), focusing on prominent examples such as Blackstone, Hilton, Bain Capital, and Toys "R" Us. Through a comparative analysis of two scenarios, it scrutinizes the impact of LBOs on the profitability of these companies. Previous research predominantly concentrated on isolated aspects, lacking comprehensive cross-comparisons across various domains. This study addresses this gap by broadening the scope, aiming for a more holistic understanding. The paper examines notable instances such as the Blackstone Hilton lawsuit and Bain Capital's involvement with Toys "R" Us. It reveals that the success of LBOs hinges on several critical factors, including a robust underlying business model, an appropriate financing structure, and a well-defined exit strategy. By elucidating these key components, the research provides insights into the dynamics of LBOs and their implications for post-buyout profitability. The findings contribute to a deeper comprehension of the intricate relationship between LBOs and profitability, offering valuable guidance for stakeholders in the financial and corporate sectors.