Are Buyout Sponsors Market Timers in RLBOs?

Abstract

Using a comprehensive sample of RLBOs (reverse leveraged buyouts) from 1981 to 2006, this paper analyzes buyout sponsors’ exit strategies to assess whether their market timing affects the LBO restructuring process. The results indicate that LBO duration is negatively related to hot both IPO market conditions and industry valuation, which suggests that sponsors spend less time restructuring LBOs under more favorable external market conditions. RLBOs with shorter LBO duration experience greater deterioration of performance and the listing of immature LBOs (quick flip) leads to a high probability of bankruptcy. Moreover, post IPO, buyout sponsors tend to exit selectively; that is, they are more likely to exit when industry valuation is higher, and the more reputable sponsors are more likely to do so via facilitating takeovers.