The Long-Term Operating Performance of Reverse Leveraged Buyouts in Germany

Abstract

This paper investigates the long-term operating performance of reverse leveraged buyouts (i.e. firms that go public after previously being the target of a leveraged buyout). I analyze the accounting performance of a sample of 37 German reverse leveraged buyouts between 1990 and 2007. Before the initial public offering (IPO) performance increases while performance starts to decline two years after the IPO and continues to decline in the following years. The performance is significantly better than their peer group at the time around the IPO but worse than their peers in the subsequent years. Long-term cross-sectional variation in operating performance is related to changes in leverage. Thus, declining leverage after the IPO explains decreasing performance. In general, the leverage levels of buyouts and reverse buyouts in Germany are lower in comparison to US buyouts. This could be one reason why reverse buyouts in Germany underperform their peers in contrast to US buyouts.