Investigating the strategic patterns in LBO funds

In the mid-2000s, public-to-private transactions reappeared when the United States experienced a second leveraged buyout boom. Most sponsors are paid a management fee of 2% on the fund's capital and receive a carried interest of 20% of the profits realized by the fund. Two literature reviews serve as the basis for this research. Eckbo and Thorburn (2008) survey techniques, transaction volume, valuation effects, and potential sources of restructuring gains, where typical restructuring creates substantial value for shareholders. Kaplan and Stromberg (2009) show evidence that on average private equity activity creates economic value. At the same time, there is evidence consistent with private equity investors taking advantage of market timing (and market mispricing) between debt and equity markets particularly in the public-to private transactions of the last 15 years. The purpose of this research is to analyze the investment decisions of leveraged buyout (LBO) funds. The question at hand is whether or not it is possible to identify key investment patterns once an LBO fund is established? The hypothesis behind this research suggests that LBO funds are not pursing deals arbitrarily, but rather there are reoccurring strategic patterns, LBO funds are utilizing these patterns to make their investment decisions. If regular patterns can in fact be determined, this knowledge could be used to add value and to predict future investment opportunities.