The Global Economic Impact of Private Equity Report 2008 - World ...

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does not seem to be a significant factor predicting “reverseLBOs”, as deals in Asia, Australia and emerging markets aresignificantly more likely to eventually go public compared withother regions, including the US and UK. 10Two important economic conclusions emerge from thisanalysis. First, firms stay in LBO ownership for long periodsof time, even in cases when a private equity fund is backingthe original transaction, where the median LBO remainsmore than nine years after the original deal was announced.Secondly, public and private equity markets appear to becomplements rather than substitutes. LBOs provide a netpositive supply of firms to public markets over the longer run.Moreover, LBOs in countries with less developed markets aremore likely to return to public ownership, suggesting thatbuyouts can play a positive role in improving stock marketdevelopment in these countries.5. ConclusionThis paper has conducted the first comprehensive study ofthe worldwide demography of leverage buyouts. We confirmthat LBOs have grown dramatically over the last decades,not only in magnitude but also in industrial and geographicalscope. We also find that LBOs are a more long-termorganizational form than was previously thought. Still, thereis no evidence that the increase in LBO activity has comeat the expense of stock market development. Rather, theprivate and public equity markets appear to be morecomplements than substitutes.Many important issues still remain to be resolved in orderto understand the economic impact of leveraged buyouts.First, although the sample is the most comprehensive oneassembled to date, we still find evidence of under-reporting,particularly for the early part of the sample. We will continueto update and build this database in the future, in order toprovide a research resource for future private equity research.Secondly, one important part of LBO activity is the substantialnumber of acquisitions and divestitures that LBO firmsundertake after their original transaction, which we havelargely ignored in the present study. In order to properlyestimate the total size of the buyout market, the M&Aactivities of LBO firms also have to be taken into account.We intend to pursue this in a future project, using Capital IQdata. Thirdly, we would like to know more about the role ofLBOs in the consolidation and restructuring of industries.Finally, we are not able to study the financial performanceof leveraged buyouts in any greater detail. Looking at howfinancial performance is affected by LBOs and howperformance varies across transaction types, time periodsand countries is an important issue for future research.10See Cao and Lerner (2006) for an analysis of post-IPO performance of LBOs that return to public markets, i.e. “reverse LBOs”.12 Large-sample studies: DemographyThe Global Economic Impact of Private Equity Report 2008
FIguresFigure 1A: LBO transactions over time,number of transactionsLBO transactions 1970–2007 in Capital IQNumber of transactions3,5003,0002,5002,0001,5001,00050001965 1970 1975 1980 1985 1990 1995 2000 2005 2010All LBO transactionsLBOs with financial sponsorLBOs without financial sponsorYearFigure 1B: LBO transactions over time,sum of imputed enterprise valuesTypes of LBO transactions 1970–2006 in Capital IQCombined enterprise value (2007 USD ’000s)1,00090080070060050040030020010001965 1970 1975 1980 1985 1990 1995 2000 2005 2010All LBO transactionsLBOs with financial sponsorLBOs without financial sponsorYearFigure 2: LBO transactions by typeLBO transactions by typeNumber of transactions1,4001,200Figure 3A: Composition of LBO transactionsover time, equally weighted transactionsTypes of LBO transactions 1980–2007Percent1001,00080800600400200604020001975 1980 1985 1990 1995 2000 2005 2010YearPrivate to privateDivisionalSecondary/financial vendorPublic to privateDistressed01980 1985 1990 1995 2000 2005YearDistressedSecondary/financial vendorDivisionalPrivate to privatePublic to privateThe Global Economic Impact of Private Equity Report 2008 Large-sample studies: Demography 13
Page 2 and 3: The Globalization of Alternative In
Page 5: ContributorsCo-editorsAnuradha Guru
Page 9 and 10: PrefaceKevin SteinbergChief Operati
Page 11 and 12: Letter on behalf of the Advisory Bo
Page 13 and 14: Executive summaryJosh lernerHarvard
Page 15 and 16: • Private equity-backed companies
Page 17 and 18: C. Indian casesThe two India cases,
Page 19 and 20: Part 1Large-sample studiesThe Globa
Page 21 and 22: The new demography of private equit
Page 23 and 24: among US publicly traded firms, it
Page 25 and 26: should be fairly complete. While th
Page 27 and 28: according to Moody’s (Hamilton et
Page 29: draining public markets of firms. I
Page 33 and 34: TablesTable 1: Capital IQ 1980s cov
Page 35 and 36: Table 2: Magnitude and growth of LB
Page 37 and 38: Table 4: Exits of individual LBO tr
Page 39 and 40: Table 6: Determinants of exit succe
Page 41 and 42: Table 7: Ultimate staying power of
Page 43 and 44: Appendix 1: Imputed enterprise valu
Page 45 and 46: Private equity and long-run investm
Page 47 and 48: alternative names associated with t
Page 49 and 50: 4. Finally, we explore whether firm
Page 51 and 52: When we estimate these regressions,
Page 53 and 54: cutting back on the number of filin
Page 55 and 56: Table 1: Summary statisticsPanel D:
Page 57 and 58: Table 4: Relative citation intensit
Page 59 and 60: figuresFigure 1: Number of private
Page 61 and 62: Private equity and employment*steve
Page 63 and 64: Especially when taken together, our
Page 65 and 66: centred on the transaction year ide
Page 67 and 68: and Vartia 1985.) Aggregate employm
Page 69 and 70: sectors. In Retail Trade, the cumul
Page 71 and 72: employment-weighted acquisition rat
Page 73 and 74: FIguresFigure 1: Matches of private
Page 75 and 76: Figure 6:Figure 6A: Comparison of n
Page 77 and 78: Figure 8:Figure 8A: Comparison of j
Page 79 and 80: Figure 11: Variation in impact in e
Page 81 and 82:
Figure 12: Differences in impact on
Page 83 and 84:
Private equity and corporate govern
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et al (2007) track the evolution of
Page 87 and 88:
groups aim to improve firm performa
Page 89 and 90:
distribution of the LBO sponsors, m
Page 91 and 92:
the most difficult cases. This stor
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to see whether these changes of CEO
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Figure 3:This figure represents the
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TablesTable 1: Company size descrip
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Table 5: Changes in the board size,
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Table 7: Board turnoverPanel A: Siz
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Part 2Case studiesThe Global Econom
Page 105 and 106:
European private equity cases: intr
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Exhibit 1: Private equity fund size
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Messer Griesheimann-kristin achleit
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ealized it was not possible to grow
Page 113 and 114:
The deal with Allianz Capital partn
Page 115 and 116:
the deal, the private equity invest
Page 117 and 118:
Exhibit 1: The Messer Griesheim dea
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Exhibit 5: Post buyout structureMes
Page 121 and 122:
New Lookann-kristin achleitnerTechn
Page 123 and 124:
feet. This restricted store space w
Page 125 and 126:
institutional investors why this in
Page 127 and 128:
Although a public listing did not a
Page 129 and 130:
Exhibit 5: Employment development a
Page 131 and 132:
Chinese private equity cases: intro
Page 133 and 134:
Hony Capital and China Glass Holdin
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Hony’s Chinese name means ambitio
Page 137 and 138:
Establishing early agreement on pos
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Executing the IPOEach of the initia
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Exhibit 1A: Summary of Hony Capital
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Exhibit 4: Members of the China Gla
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Exhibit 6A: China Glass post‐acqu
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Exhibit 8: China Glass stock price
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3i Group plc and Little Sheep*Lily
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y an aggressive franchise strategy,
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soul” of the business. But there
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Exhibit 1: Summary information on 3
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Exhibit 6: An excerpt from the 180-
Page 159 and 160:
Indian private equity cases: introd
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ICICI Venture and Subhiksha *Lily F
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investment,” recalled Deshpande.
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2005 - 2007: Moderator, protector a
Page 167 and 168:
Exhibit 3: Subhiksha’s board comp
Page 169 and 170:
Warburg Pincus and Bharti Tele‐Ve
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founded two companies at this time
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By 2003 this restructuring task was
Page 175 and 176:
Exhibit 1C: Private equity investme
Page 177 and 178:
Exhibit 4B: Bharti cellular footpri
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Exhibit 6: Summary of Bharti’s fi
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Exhibit 7: Bharti’s board structu
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In the 1993‐94 academic year, he
Page 185 and 186:
consumer products. She was also a R
Page 187 and 188:
AcknowledgementsJosh LernerHarvard
Page 189:
The World Economic Forum is an inde
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