Financial Profile of Leveraged Buyout Targets: Some French Evidence

Anne-Laure Le Nadant (1) , Frédéric Perdreau (1)

1 CREM - Centre de recherche en économie et management

We investigate whether the financial characteristics of LBO targets differ from those of firms that have not undergone an LBO before the deal. Specifically, we examine the free cash flows, income taxes, capital intensity, business risk, profitability, financial structure, and asset characteristics of 175 French LBO targets that are mainly privately held and rather small companies, between 1996 and 2002. Predictions derive from the free cash flow and the tax savings hypotheses, and from the criteria used by LBO firms in their acquisition rationale. We conduct tests of differences between LBO targets and control companies and run logit regressions. Results show that LBO targets are less indebted, have more liquid (financial) assets, and exhibit higher business risk than their industry counterparts. A distinction between LBOs according to the vendor type shows that independent companies are smaller, more profitable, and have higher tax income levels, whereas former subsidiaries or divisions of groups are less profitable, and have more financial assets than their industry counterparts. Logit regressions suggest that LBOs of smaller independent targets fit fiscal and succession motives, whereas LBOs of former subsidiaries address management issues.

Mots clés: Leveraged Buy-Outs; France; Financial performance

Domaines: Gestion et management

Anne-Laure Le Nadant, Frédéric Perdreau. Financial Profile of Leveraged Buyout Targets: Some French Evidence. The Review of Accounting and Finance, 2006, 5 (4), pp.370-392. ⟨halshs-00151826⟩