Value Creation,Leveraged Buyouts (LBOs),and Financial Crisis: The Changing Value Sources and Motivations of LBOs and the Overheated U.S. Market in the 2000s

This work is believed to be the first study that comprehensively investigates the changing value sources and motivations of LBOs over an extended and recent period (1985-2005). The findings of this work imply that the LBO market over the sub period 2000-2005 was overheated. Fundamental financial prospects of LBO target firms do not justify the premiums and motivations of LBO deals in the overheated LBO market. The results of this work further suggest that the overheated LBO market over the sub period 2000-2005 is mainly fuelled by availability of too much debt financing and a relaxation of lenders? terms and conditions on debt financing in a low interest rate environment. According to the overheated market hypothesis, when there is too much money chasing a limited number of good deals then the market will overheat, leading to an increase in the number of failures.