Reverse Leveraged Buyout

Namibia, Africa
Namibia, Africa

A leveraged buyout transaction of a publicly listed firm that is taken private by a later stage private equity fund (buyout fund) is called going private. The phenomenon of an initial public offering (IPO) of a former public firm after some value enhancing years in the portfolio of a later stage private equity fund is called a reverse leveraged buyout (RLBO).

Owing to comparable good data availability, there are some empirical investigations about the long-run performance of U.S. reverse leveraged buyouts in the 1980s. In contrast to the widely documented poor stock prize performance of IPOs and seasoned equity offerings, all authors find no underperformance subsequent to the IPO for reverse leveraged buy-outs.

The results are robust for both market and accounting performance. The results indicate that private equity funds are concerned about the post-IPO performance of their investments since they are repeated players in the IPO market and hold a significant ownership stake in the public firms subsequent to the IPO.