why do firms go private

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Bankers, Markets & Investors nº 113 july-august 201150

Focus on…Why do Firms go private?Motivations, Performance and international issues

I. Introduction■

Since few years we observed a trend of increasing num-bers of companies to “get out of the exchange” ie close totheir capital to the public, this is called Public to Private,symbol of PtoP.

The PtoP (Public to Private) operations are still littleknown in France even if they begin to develop. Indeed,PtoP included all the listed companies which decide toleave the fellowship; they are also synonyms for goingprivate1. A company is said to be going private when the

company’s value is replaced by equity participation of private investors. The company is delisted from the Stock Exchange and can not be purchased on the open market.The U.S. market was the pionner in this field. By the early 80s, the craze for this type of operation was born. Thisgrowth has been such that Jensen (1989) foresaw the endof the listed companies and to have only private compa-nies. The United Kingdom was the first country in Europeto discover these operations at the mid-80 operations.France, meanwhile, realized its first operation in 1990. It remains in second position after the United Kingdom interms of amounts of transactions. These operations tendto grow more and more by the fact that the economic con-

juncture is defavorable. Moreover, they allow companiesto create a more peaceful by eliminating any possibility of redemption. This applies to the company Clarins inSeptember 2008, decided to withdraw from the fellow-ship in order to avoid any possibility of redemption. It isthe same case for two other groups: Colgate Palmoliveand Pier Import Europe are two delisted companies in2010 in Euronext Paris.

In this survey, we describe the implementation of a withdrawal of a PtoP. Then we examine their motivations,their reasons for interest in withdrawing from the stock quote. Finally, we will produce a summary of all the work on motivation and performance thereof and we describe

three main cases on this subject (Renneboog, Simons,

Wright, (2006); Desbrières, Schatt (2002); Sannajust (2009)). For this, we look at first, the seven main reasonsof PtoP operations which are: tax savings, reductionof agency costs, transfer of wealth (the debtholders toshareholders on the one hand and employees to share-holders on the other), the economics of trading costs,protection against the takeover, the under-valuation.In a second step, we elaborate a method to study theperformance of these operations prior to presenting asynthesis of empirical research. And in a last step wefocus on 3 specific cases.

II. The rise of the■

withdrawal of the quotation:Public to Private (PtoP)

Is designated PtoP any operation by which a listedcompany decides to leave the stock market. Accordingto EVCA (European Private Equity and Venture Capital),transactions of Public to Private are defined as follows:are considered PtoP all transactions involving firstly, abid on the entire capital of a company targeted by a new company called NewCo and secondly the restorationof the target company qualified private company. Theshareholders of NewCo include members of the target company and investors in Private Equity. Additionalfunding for the bid come from other financial institu-tions (banks...).

II.1. THE IMPLEMENTATION OF A PUBLIC TO PRIVATEThe establishment of a PtoP uses many legal disciplines,

whether in stock exchange or in tax law. Thus to under-stand and study these operations, some legal referencesin advance which are helpful.

Two steps are necessary to achieve a PtoP. The first step

is the collection of titles and the second step allows the withdrawal of the rating. For a better understanding of the operation we will consider it in a simple way, without going into details.

AURÉLIESANNAJUST*

AssistantProfessorin Finance

University of Saint EtienneCOACTISSaint-Etienne

ALAINCHEVALIER**Professor

ESCP Europe

* [email protected]

** [email protected]



Bankers, Markets & Investors nº 113 july-august 2011 51

First, the collection of titles represents the preliminary stage because it is required for the withdrawing the needto have at least 95% of the company targeted by the PtoP.The second step is, to achieve the withdrawal of listing

of the company. The offers of withdrawal are governedby the General Regulation of Financial Markets of theprovisions of Chapters 1 and 6 of Part V. It states that the withdrawal of the rating can take the form of a takeover bidor the form of a public offer of exchange (share exchangeoffer). They should also target all the equity securities orprovide access to capital and securities law to vote. Notethat in the case of the study, withdrawal of the offer willmaterialize only by the fact that this withdrawal is initi-ated by the majority shareholder holding at least 95% of the voting rights of the listed company. Public offer of withdrawal launched by the majority shareholders aremost often followed by a squeeze.

Note that the threshold for holding of voting rights vary according to geographic areas identified (See Tab. 1).

The principal observation that we note is that Francehas a very important tax threshold; it is the biggest (95%). This indication explains the poor number of PtoPin France compared to the others. It is a brake of theirdevelopment.

II.2. THE DEVELOPMENT OF THEPUBLIC TO PRIVATE

The development of the Public to Private can be inter-preted as a strategic solution: the companies created in

the stock market, saw their market conditions changedsince their introduction. They are now faced with constant under-valuations of their securities and many difficultiesto raise the capital needed for their development.

The PtoP are presented as the solution to these threemajor challenges faced by these companies.

We can characterize a PtoP operation as one possibleform of buyback of society with specific characteristics.In a PtoP, the acquired company is removed from thequotation and it is free of public scrutiny.

This has the advantage of freeing the company of threemajor constraints:

First, it will not appeal more to the constraints■

related to ongoing monitoring of the operations by themarket,

Then it is no longer obliged to communicate the■

results of its activities,And finally, the costs associated with the listing will■

disappear.Unlike traditional buyouts, such as takeover bid or share

exchange offer, PtoP are characterized by a massive useof debt, such as LBO. They are financed by private equity companies.

Moreover, the objectives of a take-over transaction aredifferent from those of PtoP. The takeover bid or shareexchange offer are primarily carried out by a major motivation which is the search for synergies between the target company and the company bought. Unlike the latter, thepurpose of PtoP is not in a trade or industry association

between two companies and do not represent the res-ponse of a penalty to poor management (which wouldhave resulted in a loss of efficiency). PtoP operations donot follow this logic; they are characterized as a groupfrom target companies in relation to an acquisition. Wediscuss in the following paragraphs the sources of valueand motivations that are related to PtoP transactions.

Finally we can summarize in a few words the definitionof a PtoP operation.

Public to Private (P to P) is to acquire a significant blockof shares in a listed company, to launch a tender offer andremove the company from the coast, possibly at the endof a squeeze-out.

Note: The operations of Public to Private, also called “outof stock exchange”, redeem a publicly listed companywith a structure to leverage. Most often, those of LBO andLMBO (involvement of managers) who are retained.

Before studying the main sources of value creation, we illustrat e our dev elopment of Public to Private with some examples. Indeed, we have selected all thedelisted companies in November 2010 from different

Table 1: Examples of Regulation in Europe and in the United States

Country Deutschland France Italy United Kingdom United StatesRegulator BAFin1 AMF2 CONSOB3 FSA4 SEC5

Withdrawalthreshold

No threshold providedby law. GA resolutionrequired.

95% of votingrights

98% Always possible with avote of shareholders

Requests to theSEC if a certainminimum number of shareholders

Tax Threshold 50% 95% 50% 75% 80%

1 BAFin : Bundesanstalt für Finanzdienstleistungsaufsicht : autorité de régulation financière allemande

2 AMF : Autorité des Marchés Financiers : autorité de régulation financière française

3 CONSOB : Commissione Nazionale per le Società e la Borsa : autorité de régulation financière italienne4 FSA : Financial Services Authority: autorité de régulation financière anglaise

5 SEC : Securities and Exchange Commission : autorité de régulation américaine




markets. From Euronext, we have 63 delistings whichrepresent 133 548 769€ (for example, we have Adeccoand Ada from Paris; we have Colgate Palmolive andMitsubishi from Amsterdam…). From Alternext, we

have 6 delistings which represent 635 595€ (LarocheSA for Paris…). And for Free Market, we have 55 del-istings which represent 1 436 088€ (Eurexia, AcropolisTelecom for Paris…). All these transactions duringNovember represent 135 620 452€. If we t ake the samemarkets, we observe an evolution for December 2010because the value of delisted companies represent 141 016 842€.

III. Determination of■

the main sources of valuecreation

Occurring in the context of PtoP transactions and theeconomic theories, companies withdrew from the stock quote can be explained by seven motivations (Renneboog,Simons, 2005). We can already mention them, then we will go to an in-depth study of each of them.

They are:Tax saving■

Reduction of agency costs■

Transfer value from debt holders to shareholders■

Transfer value of employees to shareholders■

Economy of transaction cost ■

Anti-takeover■

Under-Valuation■

III.1. TAX SAVINGAs an LBO, the mounting of a PtoP transaction leads

to massive use of debt, therefore, by extension to theloan. The debt contracted by the company gives themoney to carry out the montage. This loan will have adual purpose: on the one hand enable the company tocarry out the montage and also allow a tax deductionto the interest on loans. The latter will repay debt andpay shareholders through the payment of premiums.Thus, Kaplan (1989b) observed in the United States

from 1980 to 1986 that 21 to 72% of premiums paidto shareholders during the acquisitions as part of aPtoP were linked to profits that shareholders get fromtax deductions. Although this tax benefit is offered topurchasers of the company, it is the shareholders of the target company who will benefit most through thepremiums paid to shareholders. Therefore, the wealthobtained by shareholders of PtoP is positively correlated with a high level of taxation. However we can note that the impact will differ depending on the tax regime of the country in which the transaction takes place.

III.2. REDUCING AGENCY COSTS

In this paragraph, three main sources have been men-tioned: realignment of the interests of shareholders andmanagement, concentration of control and the theory of Free Cash Flow.

III.2.1. Realignment of the interests of shareholders and managementThe conflict of interest that lies between the manage-

ment and shareholders has long existed. It can be sum-

marized as follows: the management is less interested inthe results of the company and his conduct may deviatefrom what it should be to create value that will benefit shareholders.

Some consequences of this interest conflict have to bementioned.

The managers have two possible strategies available tothem: on the one hand, they must adopt a policy in themanagement of the company making them essential or very difficult to replace. On the other hand, managers may choose projects of their own that is to say that controlthem totally outside the control of shareholders. Thesetwo strategies enable them to retain their position as

leaders by making them indispensable.However, implementation of these strategies has impli-

cations for the financial plan of the company. They result in agency costs ie the costs of strategies implementedby management that go against the maximization of shareholders’ investments. So control structures haveto be placed (audits, regular presentation of the situa-tion and the accounts of the company and sometimesthe use of external experts of the company). This leadsto an additional cost added to the opportunity cost that are called agency costs.

According to Jensen and Meckling (1976), it is possibleto solve this problem of divergence of interests when the

managers have an important part of the capital (whenthe organizational structure is the subject of LMBO).In a study of Kaplan in 1989a he notes that there is anincreased participation of management in the capital:it is the subject of a LMBO transaction. This increaseamounts to 4.41% for the President and CEO and 9.96%for other executives.

Therefore, the reunification of shareholders (= ownership)and managers (= control) leads to a better organizationalstructure where the increased efforts by managers are tomaximize the value of the company. This suggests that the gains of shareholders are negatively correlated withequity participation of managers of the company.

III.2.2. Concentration of controlThe use of control structures is essential. Studies of

Easterbrook and Fischel (1983), Grossman and Hart (1988) show why a share is either low or dispersed, will under-invest in monitoring activities (the prob-lem of free-rider). Indeed, a company that has a widely dispersed shareholding will have agency costs higherbecause the shareholders will not be encouraged to invest in management control. For this we can deduce that if the shareholders have a small share of capital, they willunder-invest in activities. PtoP operations are presentedas being the solution of the reunification of the control

and ownership: equity funds are concentrated, investorsare more motivated and they have more information toinvest in monitoring management (Maug (1998)). ThusPtoP would solve the free rider problem through the




development control system. The hypothesis of controlimplies that the gains made by shareholders in PtoPresulting mainly management system imposed by themanagement team in place.

III.2.3. Theory of Free Cash FlowThe Free Cash Flow is defined by Jensen (1986) as a cash

flow in excess in relation to what is required to fund allprojects that have a positive net present value. Accordingto the author, managers are tempted to keep all resourcesinstead of distributing them to shareholders in order togrow the company beyond its optimal size. This idea isat odds even with the interests of shareholders. This isespecially true when firms produce cash.

According to the theory of Free Cash Flow, the PtoPinclude companies with more Free Cash Flow thanother companies repurchased (the use of debt leads to

more borrowing, therefore more financial flows). Thisoperation is to transmit a fraction of that free cash flow to shareholders.

The replacing equity with debt, forces management topay the future cash flows rather than retain them for itsown interests. Similarly, increasing the debt involves arisk of default more important which allows manage-ment to be more motivated, to be effective, to make thecompany more efficient and to avoid being in a situationof lack of payment.

Therefore, the establishment of a PtoP operation involvesan important leverage (due to borrowing), this allows themanagement to be motivated to generate the cash neces-

sary to repay debt instead of using for their own purposesin projects with negative net present value.

III.3. TRANSFER VALUE FROM DEBT HOLDERS TO SHAREHOLDERS

There are three mains mechanisms through which a firmcan transfer wealth from bondholders to stockholders: first investment in riskier project, second dividend paymentsand finally a leverage with the same or higher duration.

This is the last solution that is used for PtoP and caninvolve a substantial transfer of value bondholders toshareholders. However, this transfer of value can be offset

by benefits related to PtoP transaction. Providers of debt can benefit from a transfer of value from other players who also have interests in the company and will reducethe value of their interest in the transaction. This is thecase of employees who benefit from pension plans orstock option plan that may see their conditions change.It can also be the case that local communities will bedeprived of tax revenues.

Moreover, as mentioned in the preceding paragraph,the debt ratio is very important, it will have an impor-tant effect for the management. He will optimize themanaging of managers in terms of performance of thecompany in order to face the risk of default. According

to the theory of signal (Ross, 1973), a LMBO impliesfinancial management in the takeover of the company and sends a positive signal to the market in terms of itsability to repay its debts. U.S. studies have shown that the

bondholders not subject to protection clauses can losepart of the value of their investment.

III.4. TRANSFER OF VALUE TO THE

EMPLOYEE SHAREHOLDERSWe may consider the transfer of value to the employees

to shareholders. It is a very important element to con-sider including the decision to conduct a PtoP transac-tion. Marais, al. (1989) supports the idea that the loss of employees’ interests in the company, after its takeover by new shareholders, can challenge the implicit agreementsbetween the company and employees: it is a primary factorin PtoP. The new shareholders have the goal of increasingcash flows of the company. The counterpart would be areduction in salaries of employees or the reduction of thenumber of employees. These measures have a net present value which must appear in the premium offered and theevolution of the stock after the announcement of PtoP.Note that this transfer will more occur in Anglo-Saxoncountries than in European countries because the lawsare much less protective and beneficial to employees.

III.5. THE COST SAVINGS LISTING

The costs of maintaining the listing of the company arehigh. In the United States they are estimated between30 000 and 200 000 dollars depending on the size of the company. They include all costs related to the statusof the listed companies, the fees, administrative costsand miscellaneous expenses. For example, if we take

an estimated cost of 100 000 dollars and if it integratesthis result in calculating the value of the company usinga discount rate of 10% over an infinite period, when thecompany released of listing, its value increases by onemillion dollars. One can give another example in takingthe case to a British company with a market capitalizationof 100 million pounds sterling, it needs 43 700 poundssterling to be admitted on the London Stock Exchange in2003 with an annual fee of 6 280 pounds for the mainte-nance of its registration. These costs may vary dependingon the size of the company, the market quotation andall expenses (administrative costs of registration fees of lawyers, brokers, reporting ...). They can reach up to 250

000 pounds sterling.

III.6. ANTI-TAKEOVER

Another reason which may lead to the launching of aPtoP is the fear of being redeemed. In principle, after thetakeover of a listed company, it is very probable that part of management lost their jobs. Many studies have inves-tigated this case. We can cite some results of studies.

In the UK, Kennedy and Limmack (1996) observed that 40.14% of companies acquired in the form of traditionalbuyouts, have replaced their CEO in the first year follow-ing the acquisition and that 25.7% did it so during the

second year. A more recent study conducted by Dahya andPowell (1998) estimated that 35.24% of the teams leavethe company in the first year of operation and 25.8% doit during the second year.




In the United States, Martin and McConnell (1991)observed that 41.9% of the teams, leave their jobs in thefirst year of operation.

Therefore, a LMBO protects the leaders of this phe-

nomenon. Management who is taking a significant stake in the company, is covered against any potentialhostile takeover.

III.7. THE UNDER-VALUATIONBy definition, the market is considered efficient, so it

enhances companies function of public information. How-ever, it may happen that there is informational asymmetry between management and shareholders. Indeed, managersmay have access to more information, it will have a betterappreciation and evaluation of future performance of thecompany and therefore realize that the stock is undervalued.In addition, small firms, which have low liquidity, will haveproblems as regards the transmission of market information,resulting in a share price that may not reflect its fair value.Similarly, it is possible that in a LMBO, the use of financialand accounting techniques by managers can bring downthe share price before the announcement of the transaction.They use and internal information to their advantage.

Kaestner and Liu (1996) show that LMBO are precededby a stock above the normal by the management whereasthis is not the case for PtoP operations.

IV. How to study the■

performance of a Public to

Private?

Renneboog and Simons (2005), two authors, of Dutchorigin, conducted a study highlighting the changingPtoP as well as the different motivations that justify theirdevelopment. In addition, they try to show whether theimplementation of PtoP transactions form has a real impact on corporate governance. This article helps answer thequestion: how to analyze the performance of a Public toPrivate transaction?

Both authors think that the study of the performance of these operations should consist of four parts, these partsrepresenting the various stages of the transaction. We willpresent the summary of this methodology.

IV.1. THE PHASE “INTEND”This section is to establish the characteristics of the

firms and their motivations before the transaction.Maupin, Bidwell and Ortegren (1984), note that the Priceto Book of listed companies is generally lower, whichconfirms the hypothesis already mentioned above, that of under-valuation. This is one of the motivations of thesecompanies to go to the private sector. Furthermore, theassumption regarding the tax reduction, is not necessar-ily the main reason for the listed companies to go intothe private sector. In fact, according to a U.S. study, themain reasons for the change of sector are more related

to the presence of management, the concentration of ownership and the concentration of hostile take. Theselast three reasons are considered major.

We have summarized a few studies on governance inPtoP before the “exit” (See Tab. 2).

This table explains the main characteristics of firms which are going private. We observe that takeover andthe results of cash flow are two main reasons for a firmto be delisted.

IV.2. THE PHASE “IMPACT”This phase defines the impact of the announcement of a PtoP

transaction on shareholders wealth. This impact is measuredin two ways: on the one hand with the use of event studies andon the other hand with the estimation of premiums.

The first method allows to obtain the abnormal returnsto measure the effect of an informational event on themarket value of the company. The second method is not the same: it does not compare with the returns achievedprofitability but estimated to calculate the payment of premiums during the operation. This premium is equalto the difference between the value of the company at thebeginning of the transaction and its final value. You may

Table 2: Summary of main studies for the Intend Phase

Authors Country Transaction Results

Maupin (1987) USA PtoP MBO

Ownership concentration, price to book value ratio, cashflow to net worth, cash flow to assets, P/E ratio, dividend yield and book value of assets to original costs distinguishPtoP from comparable no-PtoP.

Singh (1990) USA PtoP, MBO, LBOPrior takeover attempt, cash flow to sales and net assets toreceivables predict likelihood of buy out.

Eddey, Leek andTaylor (1996)

Australia MBO Takeover threat strongly associated with going private.

Boulton, Leh, Segal(2007)

USAManagement andnon managementled PtoP

Firm going private under-performed but had more cashassets than industry peers, and had higher relative costs of compliance with Sarbanes-Oxley.




use any method, however, the results will be different.Indeed, the study of returns has the advantage to show the corrected results of the benefits (unlike the method of calculating the premium). In addition, analysis of abnor-

mal returns is a measure of the market on expected futureprofits of the company and includes the probability that the offer may fail as opposed to the method of premiums.The cancellation of a tender is a real fear for PtoP. Indeedas pointed out, DeAngelo, DeAngelo and Rice (1984), theloss of profitability in 2 days can reach 8.88%. Marais,Schipper and Smith (1989) also confirm it.

IV.3. THE PHASE “PROCESS”This phase allows us to know if a PtoP organizational

form is a more efficient organizational form (Jensen, 1989)or simply a transfer gains tax (Lowenstein, 1985). Thesestudies reflect some differences between the authors.

Several themes are addressed, we can mention a few: first,the performance of PtoP after the transaction, then thesituation of employees after the transaction and finally the financial situation of these.

Performance of companies after the PtoP transaction:■

According to Kaplan (1989a), the performance of thesecompanies does not increase during the first two years but from the third year, they experience a gain of 24.1%. His

sample is based on 48 operations from 1980 to 1986. Inaddition, he noticed that PtoP have a better performancethan quoted companies.

Status of employees after the transaction:■

Kaplan (1989a) shows that the median employment increases of 0.9%. Muscarella and Vetsuypens (1990)note that there is no dismissal after an operation toPtoP. Lichtenberg and Siegel (1990) observe in a study of LMBO that productivity increased by 8.3% comparedto the industry average over the three years followingthe transaction.

Financial situation:■

Wright, Wilson, Robbie and Ennew (1996a) show that

there is a low probability that PtoP go bankrupt becauseof their managerial effectiveness.We have summarized a few studies on the financial

performance of PtoP:

Table 3: Summary of studies for the Process Phase3a: Impact of the organization after the PtoP

Authors Country Transaction ResultsKaplan (1989) USA LBO Small increase in employment post buy-out but falls after adjusting for industr y effects.

Muscarella,Vetsuypens (1990)

USA Reverse LBO Median number of employees fell between LBO and IPO but those LBO without asset divestmentreported median employment growth in line with top 15% of control sample: divisional LBO morelikely to increase employment than full LBO.

Smith (1990) USA LBO Small increase in employment post buy out but falls after adjusting for industr y effects.

Opler (1992) USA LBO Small increase in employment post buy out.

Wright,Thompson,Robbie (1992)

UK MBO,MBI Average 6,3% fall in employment on MBO but subsequent 1,9% improvement by time of study.

3b: Impact of the performance after PtoP transaction

Authors Country Transaction ResultsBruining (1992) Holland MBO Buy-outs display significantly higher than industry average cash flow and return on investment.

Smart, Waldfogel(1994)

USA LBOMedian shock effect of buy out of 30% improvement in operating income/sales ratio between pre-LBO year and second post-LBO year.

Wright, Wilson,Robbie (1996b) UK

MBO and no-MBO Profitability higher for MBO than comparable no-MBO for up to 5 years.

Desbrières,Schatt (2002)

France MBO, MBI Accounting performance changes depend on vendor source of deal.

Cressy, Munari,Malipero (2007)

UK MBO, MBIOperating profitability of Private-Equity backed buy-outs greater than for comparable no buy-outs by 4.5% over first three buy-out years.

Guo, Hotchkiss,Song (2007) USA PtoPReturns to pre or post buy-out capital significantly positive except for firms ending in distressedrestructuring. Returns to post buy out capital greater when deal financed with a greater proportionof bank financing or when there is more than one private equity sponsor.




These tables present the impact of PtoP transaction fortheir organization and their level of performance. Someremarks can be noted:

Concerning the organization, for all the studies, the■

number of employees has a decrease trend. We canunderstand the result by the fact that managers haveto reduce costs in order to avoid default because of theloan that implies the transaction.

Concerning the performance, we observe a better■

profitability and a higher return of investment.

IV.4. THE PHASE DURATIONKaplan (1991) shows a study of 183 LBO over a period

from 1979 to 1986, the median lifetime of these transac-tions is 6.82 years. He also notes that the relationship with the duration is positive from 2 to 5 years and not after. This means that the probability of return in thepublic sector is more significant between 2 and 5 yearsand decreases thereafter.

We have summarized a few studies on the long termeffects (See Tab. 4).

This table indicates how much is the duration of privatestatus. On average, we note 5 years after the transaction(See Tab. 5).

Generally, we observe a decrease of R&D expenditure.This result corroborates with the decrease of employees:the firms have to reduce their costs.

V. “Focus on” three cases■

V.1

. RENNEBOOG, SIMONS, WRIGHT (2006)This study, realised by three authors, is the most

complete of the literature of Public to Private tran-saction. Indeed, they analyse the magnitude and thedifferent sources of wealth gains for shareholdersin the United Kingdom from 1997 to 2003. They study the same motivations as we have said in thebeginning of the article. They retain 177 operationsfrom the CMBOR database. The methodology usedis divided into two steps: first they evaluate the wealth obt ained by shareh olders , two measur es areadopted: the premium and the CAAR (Cumulative

Average Abnormal Return). Then, they used thesetwo measures as dependant variable in order to maketheir multivariate regressions. They conclude that undervaluation, taxation benefit, the realignment of interests between shareholders and managers are thethree main sources of wealth creation.

V.2. DESBRIÈRES, SCHATT (2002)As we have said, the studies of PtoP in France are

not very important (Desbrières, Schatt (2002), Anne-

Table 4: Summary studies for the Duration phase

Authors Country Transactions Results

Kaplan (1991) USA LBOHeterogenous longetivity. LBO remain private for median 6,8 years. 56% still privately owned after year 7.

Wright, al. (1995) UK MBO, MBI

Heterogenous longetivity. Greatest exit rate in years 3-5; 71%still privately owned after year 7. MBI greater rate of exit thanMBO in short term consistent with higher failure rate of MBI.Exit rate influenced by year of deal (economic conditions).

Strömberg (2008) WorldwidePrivate Equitybacked buy-outs

58% of deals exited more 5 years after initial transaction; exitswithin 2 years account for 12% and have been decreasing.

Table 5: Impact of the R&D expenditure

Authors Country Transactions ResultsKaplan (1989a) USA LBO Capex6 falls immediately following LBO.

Smith (1990) USA LBO Capex and R&D fall immediately following LBO.

Wright,Thompson,Robbie (1992)

UK MBOMBO enhance new product development; 44% acquired newequipment and plant that would not otherwise have occurred.

Long, Ravenscraft(1993)

USA LBO and MBO Reduction in R&D expenditure.

6. Capex : Capital Expenditure




Laure Le Nadant (2000), Stephane Onnee (1998),Sannajust (2009)). The best complete study is fromDesbrières, Schatt (2002). It deals with the financialcharacteristics and changes in performance of French

companies involved in a leveraged-buy-out from 1988to 1994 with 161 MBOs from Diane as database. Thisstudy investigates more the second phase that wehave presented before (phase “Process”). Indeed,they study the performance and the financial resultsafter the transaction. For this, they construct a samplecontrol in order to compare LBO deals and no-LBOdeals. They make a univariate study. They concludethat after the transaction, the performance of Frenchcompanies falls contrary to those in the United Statesand in the United Kingdom. This decrease of perfor-mance has more impact for family companies thanfor subsidiaries of groups.

V.3. SANNAJUST (2009)This study deals with the motivations and the perform-

ance of PtoP with an international case. Two innova-tions are mentioned: first, it is the first time that aninternational study has been realised and second, it is the first study of Asia. It investigates in two times:first, the author analyses the motivations of PtoP andsecond she studies the impact of PtoP to the shareholder wealth. The methodology used is a univariate and mul-tivariate analysis with a control sample to evaluate themotivations for firms to go private then she determinesthe premium and the CAAR as two wealth measures

from shareholders and finally they make a multivari-ate regressions with premium and CAAR as depend-ant variables. The sample and the control sample arecomposed of the United States, the Europe and Asia. It represents 413 firms from Thomson One Banker (datasfor financial performance), ORBIS (control sample),OSIRIS (sample of PtoP). She concludes that threeprincipal motivations emerge from the internationalsample (even if there are more specific motivationsby geographical areas): the level of FCF, the takeoverthreat and the under-valuation.

Conclusion■

Since a few years ago, we observe an increase of publicto private transactions. This phenomenal was especially observed in the United States and in United Kingdom.In the recent years, a raise of PtoP is also remarkable inFrance. At this date, no study about the performance of PtoP with an international case has been realized that’sthe reason why this “focus on ” adds some contributions.As we said, little research has been done except two mainreferences: Wright (2006) for the United Kingdom andDesbrières-Schatt (2002) for France. It is one of the maillimit of this thematic.

The aim of the paper is to make a synthesis of all studiesand to list the main motivations of companies to go private.We retain seven motivations (tax saving, reduction of agency costs, transfer value from debt holders to shareholders,transfer value of employees to shareholders, economy of transaction cost, anti-takeover and undervaluation). By reference to various studies we observe that three principalmotivations emerge: the level of FCF, the takeover threat and the under-valuation. This result can be applied forthe international study (Sannajust, 2009).

However, some limits can be mentioned. Indeed, theinternational dimension is a development to furtherexplore. What’s more the beginning of the study of Asia is very important, because this country know these transac-tions since the early 2000’s and become more and moreimportant in terms of value transaction.

Aurélie Sannajust would like to thank all the membersof her PhD and especially Professor Philippe Desbrièresfor his help and valuable advice.

1 Note that in American literature, the term joint PtoP and LBO is o ften used. Indeed,as the PtoP, LBOs are financed largely by debt. The distinction between the twois explained in terms of composite mode of financing the debt: for example, PtoPwith more than 50% debt financing of the LBO debt. The distinction is quite subtle,we should analyze the financial structure of each company, which is extremelydifficult, which is why PtoP and LBO can be used simultaneously. When we employLMBO, we refer to as the redemption of society made by its management team.

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