This paper examines leverage in United States private equity led LBOs. The dataset used is a unique, self-constructed sample of 45 United States private equity sponsored buyouts completed between 2006 and 2014. Through a series of regressions, I find that classical capital structure theories and debt market liquidity do not explain leverage in LBO’s. Due to limitations the data set that I constructed proved to be not large enough to come to any significant conclusions. The only significant variable that determines leverage multiples in U.S. LBO’s is the ratio of fixed assets to total assets. This thesis finds that the signs and coefficients are similar to previous empirical research, but they are all insignificant in terms of the regression analysis. It could be concluded that there are too many variables and external factors that determine the leverage multiple in leverage buyouts.
Various factors contribute to the level of debt financing used in leveraged buyouts. This paper examines the relationship between levels of buyout debt with two different categories of determinants. These determinants are broken into factors exogenous and endogenous to leveraged buyouts. Exogenous factors include credit market conditions along with industry and region of the acquired firm, while endogenous factors are firm specific, such as profitability, operating efficiency, and previous capital structure of target firms. Previous literature found that credit market conditions are the only significant indicator of debt in leveraged buyouts. This paper uses quantitative methods to show that firm specific metrics do in fact have significant relationships with buyout debt and can predict debt levels in leveraged buyouts.