What drives leverage in leveraged buyouts? An analysis of European leveraged buyouts' capital structure

This paper examines leverage in European private equity-led leveraged buyouts (LBOs). We use a unique, self-constructed sample of 126 European private equity (PE)-sponsored buyouts completed between June 2000 and June 2007. We find that determinants derived from classical capital structure theories do not explain leverage in LBOs, while they do drive leverage in a control group of comparable public firms. Rather, we document that leverage levels in LBOs are related to the prevailing conditions in the debt market. In addition, our results indicate that reputed private equity sponsors use more debt and that secondary buyouts have higher leverage levels.