Leveraged Buyout Activity : A Tale of Developed and Developing Economies

Returns on LBOs are on average higher for developed markets. However, returns of LBOs during high economic growth periods are high for developing nations relative to developed economies. On the other hand returns in developing nations are lower when compared to the returns in developed nations in periods of negative economic growth. Developing countries are more unstable relative to developed countries during conditions of boom as well as collapse. Exit times for LBO transactions in developing economies are therefore shorter relative to developed economies in periods of high positive (negative) economic growth rate. This is because PE investment firms would like to exit soon and lock in their profits in the good times and avoid major losses in the bad times. During periods of negative economic growth rate, the LBOs in developing nations exit sooner. In periods of low or medium economic growth, LBOs in developing economies take longer times to exit. Reputed firms and small firms have higher returns and exit sooner. Club deals have higher returns and exit sooner when compared with single PE firm deals. Club deals in developing economies are on average not profitable and exit sooner