Corporate Raiders at the Gates of Germany? Value Drivers in Buyout Transactions

Abstract

In this article, the German-speaking countries in Europe (DACH) are treated as a distinct economic region. We analyze a proprietary sample of deal level data for 123 leveraged buyout transactions in the DACH countries between 1995 and 2010. By distinguishing between financial and operational value drivers through unlevering the overall times money multiple, we find that two-thirds of generated value stems from EBITDA growth, excess cash generation, and multiple expansion, while one-third of value generated stems from leverage. Buyouts are found to yield abnormal returns compared with public benchmarks. The overall average (median) operational alpha is 11.6ppts (5.7ppts) in our sample. Buyouts before the global financial crisis in 2008 show better performance, while post-crisis exits have a significantly higher operational alpha.