Incidence and Structure of European Buyout Syndicates: Empirical Results from an Integrated Study

We empirically examine under what conditions lead financiers decide to finance a buyout through a syndicate of multiple investors and how these syndicates are structured, using a unique dataset of 865 European buyouts during 1999-2009. We rely on a theoretical framework that integrates the benefits of syndication, based on risk-diversification, resource-based, and deal-flow motives, and the costs of syndication, such as potential information and incentive problems within the syndicate. We find evidence that lead financiers syndicate to diversify target default and legal risk, and to learn about the institutions of the target country. Lead financiers subsequently decide on the fraction of the deal to retain and on the number of syndicate participants so as to minimize syndication costs while further maximizing syndication benefits. Interestingly, and after accounting for the endogeneity of syndication decisions, we find that the post-buyout profitability and growth of target firms are superior when buyouts are syndicated and when these syndicates are structured to maximize investor involvement while limiting conflicts of interest.