IPO vs Private Equity: analysis and comparison of firms in a pre-IPO/buyout stage

(1)

IPO vs Private Equity: analysis and comparison of firms in a

pre-IPO/buyout stage

João dos Santos Romariz

Dissertation Master in Finance

Supervised by

(2)

2018

ACKNOWLEDGMENTS

Firstly, I would like to thank my supervisor, Professor Miguel Sousa, by his help and availability throughout the elaboration of this dissertation.

I would also like to thank my family and my friends for their support and encouragement.

(3)

ABSTRACT

The issue of raising new capital as always been a debated subject in the world of Finance. It is a subject of paramount importance for firms, since it is a complex and expensive process that has huge impact in the future of the firm. Although the necessity for raising new capital is old, the manner in which this process is done seems to be changing. New firms, especially firms in sectors with high technological and R&D intensity are delaying the decision to go public, which contrast with older firms. This issue relaunches the discussion of private funding versus public funding.

Despite the large quantity of literature about private funding and public funding, there is very little literature about the relationship between firm’s characteristics and the process of either going public (IPO) or going for private funding (Private Equity).

This dissertation seeks to fill this gap in the literature by studying the influence that operating performance and capital structure may have on the outcome of a firm going public or being bought by Private Equity, by using a sample of 3847 firms in the European Union which either went public or were bought by Private Equity between 2014 and 2017.

The results show that there are significant differences in operating performance and capital structure between firms that went through an IPO and firms bought by Private Equity. Moreover, the results also show that there is a positive effect of operating performance and capital structure in the likelihood of being acquired by Private Equity. This suggests that Private Equity investors target firms with growth potential, in order to develop them to their full potential, thus creating value.

(4)

Key-words: Going public; Going private; Operating Performance; Capital Structure

CONTENT OF TABLES

Table 1: Institutional Buyouts and IPOs per year...16

Table 2: Institutional Buyouts and IPOs per business sector...17

Table 3:Institutional Buyouts and IPOs per country...19

Table 4: Average firm age...19

Table 5: Firms characteristics in the year previous to going public/being acquired by PE...20

Table 6: Operating performance and capital structure in the year before going public/being acquired by PE...20

Table 7: Wilcoxon rank-sum test- Assets, Turnover and EBITDA...22

Table 8: Wilcoxon rank-sum test- Operating performance and capital structure...24

Table 9: Probit regression-Assets, Turnover and EBITDA...26

Table 10: Probit regression-Operating Performance and capital structure...28

(6)

(7)

List of Abbreviations

CAPEX - Capital expenditures DE - Debt-to-equity ratio

EBITDA - Earnings before interest, taxes, depreciations and amortizations

LBO - Leverage buyout SBO - Secondary buyout MBO - Management buyout CFO - Chief Financial Officer

(8)

1.INTRODUCTION

One of the most discussed subjects in the world of Finance is the issue of raising new capital. This is an important subject since it is a very expensive and complex process to firms that will greatly impact the future of the firm. Raising capital can be done by adopting several strategies. Two of the most known strategies resort to going public (IPO) or to obtain private funding (Private Equity).

Firms like Uber and Airbnb are the two most flagrant examples that illustrate the importance of how firms raise new capital. Nowadays, many unicorn firms are not too eager in going public, thus remaining private. This is interesting because if we compare the current situation with the past, we can observe that new firms are taking longer and longer to go public. Some even choose to remain private. This new circumstance makes the discussion about private funding or public funding relevant.

Each of these strategies have their own unique advantages and disadvantages, which are well known in the existing literature. Other topic which is very discussed in the literature is the pre-and post-performance of firms which have either gone public or were funded by Private Equity. There is, however, there is very little literature on the relationship between the process of either going for public funding or going for private funding and the specific characteristics (performance and capital structure) of the firms before the deal or acquisition.

The purpose of this research is, firstly, to understand if there are specific firm characteristics that influence the outcome of firms opting to go public, and therefore, undergo an IPO, or, on the other hand, influence the outcome of firms being acquired by Private Equity funds/investors and, secondly, the impact of those

(9)

characteristics on the outcome which was referred previously. This dissertation will focus on the relationship between the operating performance and capital structure with the outcome of going public through an IPO or being acquired by Private Equity, analyzing the changes in operating performance and capital structure that occur before a firm goes public or is acquired by Private Equity. This will allow us to observe which type of firms are more prone to going public or to be privately funded.

This dissertation is organized as the following: in section 2, there will be presented a review of the academic literature about the performance of IPOs and buyouts, as well as the decision of going public or going private. In section 3, the methodology that was utilized will be explained, as well as the empirical results regarding the operating performance and capital structure before firms go through an IPO or are acquired by Private Equity. Finally, section 4 will present the main conclusions of this study.

(10)

2. LITERATURE REVIEW

2.1. ADVANTAGES AND DISADVANTAGES OF GOING PUBLIC

2.1.1. Advantages of going public:

 Less dilution: the firm can set a higher price for its securities through IPO than through private placement. By this way, it gives less equity in the firm to receive the same amount of funding by going public.

 Enhanced ability to borrow: by going public, the firm increases its net value and improves its debt-to-equity ratio. The lower debt-to-equity ratio gives a chance to the firm to issue debt on more favorable terms in the future.

 Enhanced ability to raise equity: when a firm’s stock is famous and performs well, the company can sell additional stock on favorable terms in the future through a seasoned equity offer.

 Liquidity and valuation: after becoming a listed firm, the stock market will be established, allowing the purchase or sell

(11)

stock for all investors. The market also helps investors and management to valuate stock.

 Prestige: may increase the corporate prestige and enhance more interest in the firm from customers, suppliers, media, banks, government and prospective investors.

 Loss of control: it may be an advantage if shareholders are willing to sell their stake of the firm, since a public firm is more prone to takeovers.

2.1.2. Disadvantages of going public:

 Expensive: the cost of transforming into global transparent firm is huge, both initially and after successful IPO since the underwriter’s commission can be approximately 7-10% of the total initial offering. Furthermore, the company will have to pay out-of-pocket costs for legal, accounting and audit fees.

 Investor relations: the firm will have to hold formal board and stockholder’s meetings and devote substantial time to regulatory reporting.

 Disclosure of information: a public company’s operations and financial statements are open to the public. The sensitive information will be available to competitors, customers, employees and others. The information must be disclosed not only when the company initially goes public but also on a continuing basis.

 Pressure to maintain growth pattern: the firm will be subject to periodic internal and external pressure to maintain the growth rate it has gained. If earnings decrease from the

(12)

established trend, stockholders may sell their stock and as a result driving down its price.

 Loss of control: being public facilitates being targeted for takeovers, which will result in losing control of the company.  Risk: there is always a risk that the offering will not be completed and as a result you will have to cover expenses.

2.2. THE DECISION OF GOING PUBLIC OR PRIVATE 2.2.1. Market conditions

Ritter and Welch (2002) studied the purpose of firms going public. In their work, they show that IPO activity is not always stationary. Their data shows great changes in IPO activity: modest activity throughout 1980s followed by a big increase in the 1990s, with the issuing volume roughly doubling to $20 billion per year during 1990 to 1994, doubling from 1995 to 1998 to $35 billion per year and, then doubled again from 1999 to 2000 to $65 billion per year. However, in the beginning of the 21st_{century IPO activity falls} $34 billion in 2001. In their work, they find that the main reason why firms go public is due to market conditions. Firms are most likely to delay their IPOs during a bear market. The second important factor is due to the life cycle, a firm will only engage in an IPO if it is beyond a certain stage in its life. Lerner (1994) documents that industry market-to-book ratios have a substantial effect on the decision to go public rather than to acquire additional venture capital financing. Therefore, companies go public when equity valuations are high and employ private financings when values are lower.

Pagano et al. (1998) studied the determinants of an IPO and consequences of going public, by comparing ex and post

(13)

characteristics of IPOs with firms of similar size which were privately held. Their results show that larger companies and companies in industries with high market-to-book ratios are more likely to go public, and that companies going public seem to have reduced their costs of credit. In addition, they conclude that the main reason why firms go public is to rebalance their capital structure and to exploit mispricing rather than to raise capital for financing investments. Kim and Weisbach (2006) found similar results regarding the exploitation of the consequent mispricing, although their findings also state that the raised capital are indeed used to finance investment.

Zingales (1995) examined the decision of a firm going public by analyzing the optimal method to sell a firm by developing a model which focuses on the corporate control aspect of the going public decision. He concludes that the going public decision depends on two outcomes: if the buyer is expected to increase the value of cash flow rights, then the seller will extract a portion of the trade surplus, using an IPO, without bargaining with the buyer. If not, then the initial owner will keep the firm private and bargain with the buyer in order to maximize his value, since the IPO is not the procedure that, in this case maximizes the value of the owner of the firm.

Chemmanur and Fulghieri (1999) research gives insight about the stage in which a firm should go through an IPO instead of using private equity financing, by developing a model which simulates this decision. They concluded that the equilibrium timing of going public depends on the trade-off between avoiding the risk-premium asked by venture capitalists and minimizing the duplication in information production by outsiders.

Aslan and Kumar (2009) results showed that firms which go private have a solid increase in their profits, which is even more significant if the firms are acquired by private equity investors. They

(14)

also conclude that the market conditions are important to the decision of going public or private.

Maksimovic and Pichler (2001) examined the role that competitiveness and technological risks have in the timing of private and initial public offers in emerging markets. The determinants of this decision are the viability of the industry, the cost of R&D and the probability that a superior technology may appear. Therefore, they concluded that private financing occurs in risky industries, with high development costs and with a low probability that a superior technology may appear. Public financing occurs in low-risk industries with lower development costs and with low probability of surpassed by new technology.

In addition, Mehran and Peristiani (2009) also studied the decision of going private by public firms. They focused on the relationship between analyst coverage, institutional ownership and low stock turnover and going private. They found that public firms with low analyst coverage, falling institutional ownership and low stock turnover are more prone to go private. The main explanation for this is that when public firms fail to attract investor interest and financial visibility, they opt to go private sooner. They also found strong evidence in favor of the free cash flow hypothesis.

In his research about LBOs, Strömberg (2007) analyzed its activity, exit behavior and holding period. They found that the median firm stays in LBO ownership for about 9 years and that, in most of deals, LBO activity concentrates in acquiring private firms rather than public firms. They also conclude that, in countries with less developed markets, firms which undergo LBO activity are more prone to return to public ownership, therefore improving the stock market development in those markets.

(15)

Becker and Pollet (2008) studied the propensity of individual firms to become private. They concluded that firm size, risk, valuation, growth and profitability are able to predict the decision to go private, which is in accordance with many theories such as the free cash flow theory. They also find that book-to-market ratio is a positive predictor of a firm going private due to market timing.

2.2.2 Information asymmetry

Ang and Brau (2002) also studied the costs of going public and its relationship with the publicly available information before the IPO, by comparing non-LBO IPOs and IPOs that previously underwent an LBO. They found that PLBOs have lower costs to enter the market than the non-LBO IPOs due to the greater transparency of information, concluding that firms which previously disclose greater amounts of information have lower costs to go public, thus validating the information asymmetry hypothesis.

Subrahmanyam and Titman (1999) studied the relationship between stock price efficiency, the choice between private and public financing, and the development of capital markets in emerging economies. Public financing is preferred when serendipitous information is important for resource allocation and/or the number of serendipitously informed traders is large. Private financing is preferred when information relevant to resource allocation is very costly to obtain. They also report that the benefits from going public depends on the number of firms already trading publicly market size, since the benefits from going public are greater in a large, liquid public market.

(16)

2.2.3. Free cash flow hypothesis

Jensen (1986) stated that one of the many benefits of going private is due to the use of debt in this kind of transactions, such as leveraged buyouts. Increasing debt reduces the free cash flow available for managers to spend, which reduces agency problems between shareholders and managers. Debt is also a motivation for managers to be more efficient, since they must deal with the threat of failed debt service payments. He suggests that free cash flow theory predicts that leveraged buyouts will occur for firms with low asset growth and high book-to-market ratio, low volatility and high cash flow.

Jensen (1999b) adds that private organizations are managed with emphasis on maximizing value and not earning per share, reducing the waste of free cash flow. One of the reasons why this happens is due to resolution of the owner-manager conflicts, which allows private firms to perform more effectively than the publicly held firm.

Kosedag and Lane (2003) studied the decision of going private, by examining firms which went public after a LBO and that after going public went private again(reLBO). They try to verify if the free cash flow and tax savings hypothesis, which explain the occurrence of LBOs, have a significant impact in the decision of going private again. They found evidence of a relationship between the decision of going private again and tax savings. However, they did not find significant empirical evidence that supports the free cash flow hypothesis.

Myers (1977) studied the corporate borrowing decision and debated that cash flow from new investments can be appropriated by debtholders, which may lead to the refusal of positive net present

(17)

values projects. This is also called debt overhang which is likely to be more important to firms with high investment needs (growth firms). Since buyouts need high leverage, growth firms are less likely to go private than stable firms to avoid debt overhang situations.

2.2.4 Ownership and control

Acharya et al. (2010) examined private equity deals in the United Kingdom made by mature private equity houses. Their results show that the observed abnormal performance of the deals is due to greater intensity of engagement of private equity houses during the early phase of the deal, employment of value-creation initiatives for productivity and organic growth and complementing top management with external support. These findings are consistent with the argument that private equity creates value through active ownership and governance. Moreover, Guo et al. (2008) examined if and how do leveraged buyouts create value by analyzing a sample of leveraged buyout deals. They conclude that the leverage changes, the close monitoring and other governance activities appear to be important in explaining the operating gains in this type of deals, thus explaining how value is created.

Brau and Fawcett (2006) surveyed 336 CFOs to understand the motivations of either going public or remaining private. Their results showed that the main goal of going public is to create public shares that can be used in future acquisitions. On the other hand, staying private is a matter of preserving decision-making control and ownership.

Boot et al (2006) analyze the choice of an entrepreneur/manager between private and public ownership. They conclude that this decision is influenced by the costs and benefits the

(18)

entrepreneur perceives in his role as manager and part owner. There is a tradeoff between control preference and the higher cost of capital that accompanies greater managerial autonomy. The public capital markets provide liquidity, but stipulates corporate governance that imposes generic exogenous controls, so the manager may not attain the desired trade-off between autonomy and the cost of capital.

Pagano and Roell (1998) developed a model which takes in consideration the relationship between the ownership structure and the decision to go public by the initial owner of the firm. The owner faces a trade-off between the cost of providing a liquid market and over monitoring. They also found that decision of going public may be negatively influenced by the strictness in disclosure rules.

Chung (2011) states that one potential explanation for the motivations of the leveraged buyouts of private firms is that private equity firms may be able to improve a target’s value by mitigating inefficiencies, by developing a growth strategy to help the target firms grow and increase value.

Bharath and Dittmar (2010) conducted research on how firms assess the benefits and costs of the decision of public firms going private. Their findings provide strong support for the importance of information and liquidity considerations in being a public firm. On the other hand, access to capital and control considerations are important in the choice of going private. Leslie and Oyer (2009) analyzed the differences between firms owned by private equity investors and similar public firms. Their findings show that managers of private equity owned firms have higher incentives and that private equity ownership is linked to improvements in operational efficiency and profitability. Moreover, they also found that the higher efficiency and profitability disappears one or two years after the private equity owned firm goes public.

(19)

2.3. PERFORMANCE AND VALUE CREATION 2.3.1. IPO performance

Jain and Kini (1994) analyzed the post operating performance of firms which undergo an IPO. Their results show that, over a six-year period extending from the six-year prior to the IPO until five six-years after the offering, IPO firms perform worse when compared with their pre-IPO performance. They also find that the changes in ownership during the IPO process are related to the operating performance.

Degeorge and Zeckhauser (1993) studied the firms which undergo a reverse leverage buyout, private firms which were subjected to a leveraged buyout that turned public. Their results indicated that firms before the IPO outperformed the comparison firms and that after the IPO, they underperform the comparison firms. These results are largely explained by the information asymmetry between the owners of the private firm and the market. Cao and Lerner (2016) also researched about reverse LBOs, by comparing the stock performance of reverse LBOs with the stock performance of IPOs through a period of three to five years. Their found that reverse LBOs are much larger in size, have more leverage and higher book to-market ratios, are more profitable, and are backed by more reputable underwriters and that unlike the IPOs, LBOs are able to create wealth for equity holders in the long run.

Murray et al. (2006) evaluated the operating performance of buyout firms which exit through an IPO in the UK. They measured operating performance of buyouts firms as cashflow to total assets, asset turnover and cash flow to sales from three years before IPO to five years after IPO. IPO performance increases until the floating

(20)

year and decreases after IPO. They did not find evidence in pre-IPO and post-IPO operating performance between PE-backed and non-PE-backed buyouts. Finally, they concluded that young PE firms are more prone to a decline in margin but less exposed to a reduction in asset turnover in the post-IPO period.

Also, in the UK Harris et al. (2006) also examined the operating performance of buyout firms which exit through IPO. They found that buyout firms perform better than the industry average in both pre-IPO and post-pre-IPO moments, mainly because of a higher skill in increasing sales. In addition, they found that performance in the three years pre-IPO increase and that it decreases in the five-year period post-IPO, reaching the level of the industry average, due to the deterioration of margin and asset turnover. They also examined the performance of non-PE backed IPOs and PE backed IPOs. They found no difference between their performances.

Mikkelson et al (1997) also studied the link between ownership changes and operating performance and they find that ownership changes are not responsible for the changes in operating performance of firms. Instead, they find that the changes in operating performance are related with the age and size of the firms, concluding that younger and smaller firms have poor performances. Kutsuna et al (2002) also study the operating performance of firms which undergo an IPO and found similar results for the JASDAQ, although they do not find that ownership changes are related to operating performance. Ritter (1991) analyzed the long run performance of IPOs. IPO stocks underperform non-issuing firms of the same size by 7.4 percent per year over a three-year holding period and by 7 percent per year over a five-year holding period. Wang (2005) analyzed the changes in operating performance of Chinese listed companies around their initial public offerings and focus on the effect of ownership and ownership concentration on IPO

(21)

performance changes. There is a big decrease post-issue operating performance of IPO firms. Ownership has no significant link with operating performance, though agency conflicts, management entrenchment and large shareholders expropriation do influence Chinese IPO performance.

2.3.2. Buyout performance and value creation

Baker and Wruck (1989) studied the real-life example of the leveraged buyout of O.M. Scott & Sons Company. Their study also confirms that management equity ownership and that the disciplinary effect of high debt increases performance, by increasing monitoring, by having a better alignment of interests of both managers and shareholders and by having a better compensation process.

Smith (1990) studied changes in operating performance of management buyouts of public firms and verifies that operating returns have a significant increase from the year before to the year after the management buyout. This increase derives from better management incentives, which promotes a higher operating efficiency. It rejects the explanation that operating gains are due to managers’ private information.

Kaplan (1989a) studied the influence of tax benefits in management buyouts of public companies in order to evaluate the value of tax benefits in this type of deals. His findings demonstrate that tax benefits are an important source of the wealth gains in management buyout transactions and, therefore, an important source of value creation in this type of deals. He also suggests that buyouts are more likely to occur in firms with high cash flow. Still regarding value creation, Kaplan (1989b) research presents evidence

(22)

on changes in operating results for a sample of 76 large management buyouts of public companies. The results demonstrate that firms experience increases in operating income (before depreciation) and net cash flow as well as reductions in capital expenditures, which is concordance with other type of private transactions. The evidence presented shows that post-buyout operating performance and value increase, which appear to be caused by improved incentives.

Lichtenberg and Siegel (1990) examined the economic effects of LBOs on productivity and related aspects of the firm. Firms involved in LBOs had higher rates of increased productivity when compared with other firms in the same industry. Moreover, the increases in productivity where even larger in firms which went through MBOs. They suggest that this increase is due to two factors: the increased intensity of effort by labor, and more generally, increased utilization of all employed inputs, caused by a better incentives management and the reduction in the proportion of resources misallocated to inefficient activities, due to the reduction of free cash flow and to more intensive monitoring of managers by investors.

Achleitner et al. (2010) also examined the value drivers of going private transactions by studying European buyouts. In their methodology, they separate the value contribution of leverage from the operational improvements and market effects. They conclude that one third of the value creation arises from leverage, while two thirds come from operational improvements and market effects.

Kaplan and Schoar (2003) analyzed the performance of private equity funds. Their results showed that average fund returns, net of fees, are very similar to the returns of the S&P 500. They also found that market entry in private equity is cyclical since funds (and partnerships) which started in boom times are less likely to raise follow-on funds. This suggests that the funds which raise follow-on

(23)

funds perform worse. Their results also demonstrate that performance persists strongly across funds by individual private equity partnerships.

3. IPO VS PRIVATE EQUITY - ANALYSIS AND

COMPARISON OF FIRMS IN A PRE-IPO/BUYOUT

STAGE: EMPIRICAL EVIDENCE

This section will describe the main hypothesis of this dissertation, the creation process of the sample, the adopted methodology and the results arising from the empirical study.

Firstly, the hypothesis of this dissertation will be presented as well as the criteria for defining the sample.

Secondly, the methodology used will be explained and the main indicators of the firms will be presented and analyzed.

The final segment will regard the results of the impact of operating performance and capital structure in the decision of going private or going public.

(24)

This dissertation will analyze, in terms of capital structure and performance, the firms that underwent IPO’s and the firms that were acquired by Private Equity funds/investors in Europe. This research will focus on the pre-IPO moment/stage or on the pre-acquisition moment/stage.

The main hypothesis to be tested in this dissertation is: The changes in operating performance and capital structure of a firm in a pre-IPO/buyout stage impacts the outcome of a firm going public or private.

3.2. DATA AND SELECTED SAMPLE

To construct the sample used in this dissertation, the databases Amadeus and Zephyr which belong to Bureau van Dijk, a major publisher of business information, were used. Zephyr allowed to identify the date of the deals, the type of financial operation and the target companies, while Amadeus allowed to retrieve the financial and accounting data of the target companies mentioned previously.

Firstly, the financial operations were selected under four conditions: they had to be an Institutional Buyout or an IPO, they had to be fully completed, they had to occur between 2017 and 2014 and the target firms had to belong to the European Union.

Then, based on the selected financial operations before, the Bureau van Dijk identification numbers of the target companies were retrieved in order to obtain the accounting and financial data from

(25)

each company in Amadeus. The data retrieved from Amadeus corresponds to accounting and financial data of the target firms five years prior to either being acquired by Private Equity or going public until the year previous to being acquired by Private Equity or going public.

3.3. METHODOLOGY

In this dissertation, three variables are used to assess the performance of the firms before the IPO or acquisition: Assets, Turnover and EBITDA. All variables are presented before interests and taxes, therefore controlling for effects resulting from leverage or other financial decisions.

The indicators used to measure the operating performance of the firms prior going public or being acquired are: the Return on Assets1_{, as a measure of Productivity, the EBITDA margin}2_{, as a} measure of Profitability and the Asset Rotation Ratio3_{, as a measure} of Efficiency. The Financial Autonomy Ratio 4_{is used to assess} Capital Structure.

The EBITDA will serve as a proxy for the firms’ operational cashflow. This proxy will allow to capture the cash generated by firms which is available to remunerate shareholders and make debt-service payments. Moreover, all the variables used will not take in account taxes or interest, to control for leverage and other financial decisions.

Then the growth changes of the three variables mentioned above (Assets, Turnover and EBITDA) were computed over a four-1 EBITDA/Total Assets.

2 EBITDA/Turnover.

3 Turnover/Total Assets.

(26)

year period before the firms went public or were bought (year t-4 to

year t-1) by using the formula

X_i

(¿¿n−t−X_in−t −1)/X_in−t −1

¿

, where i refers to the firm, n to the year when the firms went public or were acquired and t to the number of years before the firms went public or were bought.

For the growth changes of the four indicators mentioned previously mentioned (to measure operating performance and capital

structure) were computed using the formula

X_i

(¿¿n−t−X_in−t −1)∗100 ¿

, where i refers to the firm, n to the year when the firms went public or were acquired and t to the number of years before the firms went public or were bought.

The main goal of this dissertation is to study the changes in operating performance and capital structure between firms that can influence the outcome of either going public and or being acquired by Private Equity.

Firstly, a Wilcoxon rank sum test (also known as Mann-Whitney U test) was performed to test if the operating performance and capital structure of the firms that went public are significantly different from the operating performance and capital structure of the firms that were acquired by Private Equity. As in Kaplan (1989), the results achieved are for medians, rather than for means, to control for outliers that dominate the means

Finally, a probit model was used in order to determine the relationship between the variables and indicators mentioned previously and the propensity of either going private or going public. In this type of model, the dependent variable can only assume two

(27)

values. In this specific case, those two values, those two outcomes will be “firms which have done an IPO” and “firms which were bought by Private Equity”. The dummy variable will be equal to one when the firm suffered an Institutional Buyout and it will be equal to zero when the firm has done an IPO. This model allows to estimate the propensity that an observation with particular characteristics will fall into a specific one of the categories/outcomes. To complement the probit model, the marginal effects were also measured, since it allows to quantitively measure the impact of the variables and indicators on the propensity of either outcome.

3.4. STATISTICAL DESCRIPTION OF THE SAMPLE

Table 1: Institutional Buyouts and IPOs per year

Table 1 displays the volume of financial operations that were used in the construction of the sample, distinguishing between IPOs and Institutional Buyouts between January 2014 and December 2017.

Operation 2014 2015 2016 2017

IPO 293 273 224 222

PE 677 726 720 712

Total 970 999 944 934

It can be observed that the number of Institutional Buyouts throughout Europe had a huge increase from 2014 to 2015. After 2014, the number of Institutional Buyouts stabilized, facing a small decrease from 2015 until 2017. The year with the most Institutional Buyouts was 2016.

(28)

In contrast, the number of IPOs in Europe had been decreasing throughout the years, being 2014 the year which had bigger IPO activity. The number of IPOs decreases from 2014 to 2017, with the biggest fall in the IPO activity being happening between 2015 and 2016.

Overall, it can be observed that, in the sample, the number of Institutional Buyouts is more than the number of IPOs.

Table 2: Institutional Buyouts and IPOs per business sector

Sector 2014 2015 2016 2017

PE IPO PE IPO PE IPO PE IPO

Banks 5 3 5 7 4 6 5 4 Chemicals, rubber, plastics, non-metallic products 74 22 61 17 58 11 50 11 Construction 36 13 29 14 30 13 31 10 Education, Health 20 6 26 5 22 5 27 4 Food, beverages, tobacco 33 11 37 7 31 3 26 1 Gas, Water, Electricity 16 7 28 2 18 8 21 2 Hotels & restaurants 25 4 32 5 17 3 18 4 Insurance companies 11 4 18 2 13 1 15 3 Machinery, equipment, furniture, recycling 127 45 119 38 117 27 122 36

Metals & metal

products 33 11 37 5 34 2 32 9 Other services 284 157 283 155 279 122 251 116 Post and telecommunicatio ns 11 7 7 7 13 3 12 1 Primary Sector (agriculture, mining, etc.) 8 10 9 4 7 2 5 3 Public administration and 0 0 1 0 1 0 1 0

(29)

defense Publishing, printing 20 6 44 12 37 17 50 13 Textiles, wearing apparel, leather 20 6 23 4 16 0 26 1 Transport 24 3 20 8 18 2 13 5

Wholesale & retail

trade 75 22 97 20 81 19 77 17

Wood, cork, paper 16 2 18 1 14 1 11 1

Table 2 sorts the sample per business sector, distinguishing between IPOs and Institutional Buyouts between January 2014 and December 2017.

The top three sectors represented in the sample are “Other Services”, “Machinery, equipment, furniture, recycling” and “Whole sale & retail trade” while the bottom three sectors represented in the sample are “Public administration and defense”, “Banks” and “Primary Sector (agriculture, mining, etc.)”. With the exception of “Banks” and “Public administration”, it can be observed that secondary e tertiary sectors are responsible for most of the financial activity in Europe.

Table 3:Institutional Buyouts and IPOs per country

Table 3 sorts the sample per country, distinguishing between IPOs and Institutional Buyouts between January 2014 and December 2017.

Country 2014 2015 2016 2017

IPO PE IPO PE IPO PE IPO PE

Austria 1 2 1 6 0 4 2 3 Belgium 2 22 6 25 3 14 1 15 Bulgaria 2 4 3 1 1 1 2 0 Switzerland 0 1 0 0 0 0 0 0 Cyprus 0 1 2 0 1 1 0 1 Czech Republic 1 4 1 7 0 13 0 5 Germany 12 57 19 66 8 73 16 76 Denmark 4 23 2 21 4 22 4 26 Estonia 0 2 0 3 0 1 0 1

(30)

Spain 12 42 20 67 23 40 9 61 Finland 1 29 6 21 6 20 4 14 France 26 96 26 117 15 89 13 109 Great Britain 104 238 66 221 52 220 63 191 Greece 0 0 0 0 2 1 0 0 Croatia 0 0 2 1 2 2 0 2 Hungary 1 1 1 4 1 2 1 6 Ireland 5 1 6 7 2 5 1 6 Italy 24 40 25 41 12 57 20 70 Lithuania 2 2 0 2 0 0 0 0 Luxembourg 4 3 1 4 3 3 2 3 Latvia 0 1 0 2 1 2 0 2 Malta 1 0 1 1 0 1 0 0 Netherlands 10 47 5 51 9 70 5 55 Norway 0 1 0 1 0 0 0 1 Poland 33 16 29 23 24 16 20 17 Portugal 1 8 0 5 0 12 0 6 Romania 1 5 1 2 2 0 2 1 Sweden 46 23 50 26 53 43 57 33 Slovenia 0 2 0 1 0 4 0 2 Slovakia 0 4 0 0 0 2 0 2

It can be observed that the country which had a higher volume of financial operations was Great Britain, followed by France. In contrast, Switzerland, Greece and Malta are the countries with the lower volume of financial operations. In addition, it can be observed that, in general, there is higher financial activity in the countries of Western Europe than the countries of Eastern Europe.

Table 4: Average firm age

Table 4 displays the average age of the firms present in the sample, distinguishing between IPOs and Institutional Buyouts between January 2014 and December 2017.

Age 2014 2015 2016 2017

(31)

PE 23 21 20 21

Total 23 22 21 19

It can be observed that, in total, the average of the firm slightly decreases from 2014 to 2017. By comparing the age of the firms that went through an IPO and the age of the firms that were acquired, it can be observed that the firms which went through an IPO are, in average, older than the firms that were acquired by Private Equity, although the difference between their ages is very small from 2014 to 2016. The biggest difference in the average is in 2017, reaching a nine-year difference.

Table 5: Firms characteristics in the year previous to going public/being acquired by PE

Table 5 displays the mean, the median and the standard deviation of the characteristics of the firms present in the sample, namely Assets, Debt, Equity, Turnover and EBITDA from the year prior to the firms being acquired by Private Equity or going through an IPO. The values are discriminated between the firms on the sample that went through an IPO and firms acquired by Private Equity. All values are presented are in thousands of euros.

Mean Median Standard Deviation

IPO PE Total IPO PE Tota_l IPO PE Total

Assets 784,3₂₂ 226,3₇₉ 243,1₂₂ 20,6₅₂ 16,4₄₅ 17,0₁₆ 6,839,7₀₆ 358,02₈ 3,185,4₅₄ Debt 187,0₁₃ 177,0₃₃ 192,6₈₅ 9,21₈ 8,49₄ 8,79₁ 1,720,7₆₄ 3,240,3₉₈ 2,902,0₃₁ Equity 87,01₃ 36,84₇ 50,43₇ 4,66₀ 4,72₀ 4,71₁ 737,37₆ 262,76₁ 447,44₆

(32)

er 87 52 67 45 73 06 17 1 55 EBITD A 27,63 3 17,16 1 20,04 7 3,15 5 2,54 0 2,69 8 213,14 6 167,75 1 181,41 4

It can be observed that, in the year prior to either being acquired by Private Equity or going through an IPO, the average of Assets, Debt, Equity, Turnover and EBITDA of the firms which went public are higher than the average of firms which were acquired. The same can be observed in the medians of Assets, Debt, Turnover and EBITDA. However, the median of Equity is superior for the firms that were acquired by Private Equity.

Mean Median Standard Deviation

IPO PE Total IPO PE Total IPO PE Total

Return on Assets 3.09 4.60 4.35 0.31 0.53 0.49 127.39 141.9₉ 138.99 EBITDA margin 394.27 106.27 308.20 0.28 0.38 0.41 10294.08 3,508.32 9,092.73 Asset Rotatio n Ratio -2.14 -1.14 -1.51 0.15 0.29 0.25 73.09 68.60 67.73 Financi al Autono -13.8 2 -11.6 8 -11.2 7 0.63 0.60 0.57 444.50 402.2 2 393.71

(33)

my

Table 6: Operating performance and capital structure in the year before going public/being acquired by PE

Table 5 displays the mean, the median and the standard deviation of operating performance and capital structure of the firms present in the sample, namely Return on Assets, EBITDA margin, Asset Rotation Ratio and Financial Autonomy from the year prior to the firms being acquired by Private Equity or going through an IPO. The values are discriminated between the firms on the sample that went through an IPO and firms acquired by Private Equity.

The figures show that the averages of Return on Assets, Asset Rotation Ratio and Financial Autonomy are higher in the firms that went private. It is also noticeable the big difference in magnitude of the Asset Rotation ratio average when compared with the other indicators.

The analysis of the median allows to take the same conclusion as the mean analysis, with the exception of the EBITDA margin and the Financial Autonomy.

3.5. RESULTS

3.5.1. Assets, Turnover and EBITDA

Table 7: Wilcoxon rank-sum test- Assets, Turnover and EBITDA

Table 7 shows Wilcoxon rank-sum (Mann-Whitney) test results regarding the growth of Assets, Turnover and EBITDA between the firms that went through an IPO and the firms that were acquired by Private Equity in the four years prior to the firms either going through an IPO or being bought by Private Equity. All values in percentage. *, **, *** indicate that the firms which went through an IPO and the

(34)

firms which were acquired by Private Equity are significantly different at the 10%, 5% and 1% level, respectively.

IPO PE

Median (%) Median (%) Z-score 4 years before operation

Assets (%) 6.82% 6.04% 1.31

Turnover (%) 6.50% 6.87% 3.038***

Ebitda (%) 8.26% 6.93% -3.979***

3 years before Operation

Assets (%) 5.69% 6.61% 0.549

Turnover (%) 5.82% 7.61% 3.605***

Ebitda (%) 7.60% 7.68% -1.93*

2 years before Operation

Assets (%) 7.10% 7.13% 2.856***

Turnover (%) 9.58% 12.20% 2.985***

Ebitda (%) 8.26% 8.79% -6.038***

1 year before Operation

Assets (%) 8.17% 7.06% 7.326***

Turnover (%) 9.80% 11.98% 5.736***

Ebitda (%) 8.56% 8.00% -7.289***

The results show that both firms which went through an IPO and firms that were acquired by Private Equity have experienced, during the four years, overall growth in Total Assets. However, these differences are only statistically significant for the first and second year before the operation at a 1% level.

Regarding Turnover, firms which went through an IPO present, overall, growth during the four years. Firms which were acquired also registered, overall, growth in Turnover in the four years. The

(35)

results show that in all four years, Turnover is different between firms that went through an IPO and firms which were acquired in all four years and are all statistically significant at a 1% level.

The differences in EBITDA between the firms that went public and the firms that were acquired are statistically significant for all years at a 1%, 5% and 1% level in forth, third and both second and first years before the operation, respectively. Overall, both firms present growth from the fourth year before the operation until the first year before the operation.

Globally, the results show that, from the fourth year before the operation until the year before the operation the variables growth increased. Moreover, these results can be considered evidence of the existence of significant differences in Assets, Turnover and EBITDA between the firms that went through an IPO and firms that were bought by Private Equity.

(36)

Table 8: Wilcoxon rank-sum test- Operating performance and capital structure

Table 8 shows Wilcoxon rank-sum (Mann-Whitney) test results regarding the growth of Operating Performance (Return on Assets, EBITDA margin, Asset Rotation Ratio) and Capital Structure (Financial Autonomy) between the firms that went through an IPO and the firms that were acquired by Private Equity in the four years prior to the firms either going through an IPO or being bought by Private Equity. All values in percentage points. *, **, *** indicate that the firms which went through an IPO and the firms which were acquired by Private Equity are significantly different at the 10%, 5% and 1% level, respectively.

IPO PE

Median (p.p.) Median (p.p.) Z-score 4 years before operation

Return on assets (p.p.) 0.28 0.23 1.549 Ebitda margin (p.p.) 0.04 0.11 2.874** Asset rotation ratio (p.p) 1.39 0.85 1.094 Financial autonomy (p.p) 0.61 0.51 -2.713***

3 years before Operation Return on assets (p.p) 0.12 0.25 0.886 Ebitda margin (p.p.) -0.01 0.16 2.66*** Asset rotation ratio (p.p.) 0.68 0.31 1.645* Financial autonomy (p.p.) 0.44 0.27 -0.231

2 years before Operation Return on assets (p.p.) 0.20 0.35 1.307 Ebitda margin (p.p.) 0.29 0.43 -1.767** Asset rotation ratio (p.p.) 0.61 0.50 -0.048 Financial autonomy (p.p.) 0.61 0.65 -0.535

1 year before Operation Return on assets

(37)

Ebitda margin (p.p.) 0.28 0.38 -1.075 Asset rotation ratio (p.p.) 0.15 0.29 -1.793** Financial autonomy (p.p.) 0.63 0.60 0.085

The results regarding Productivity (Return on Assets) show that both the firms that went public and the firms that were acquired have a global increase throughout the four years prior to the operation. However, the results also show that only in the first year before the operation the difference in Productivity is statistically significant at a 1% level.

The results regarding Profitability (EBITDA margin) show that both the firms that went public and the firms that were acquired have a global increase throughout the four years prior to the operation. The differences of Profitability between firms that went through an IPO and the firms that were acquired by Private Equity are statistically significant for all years at a 1% level for the fourth, third and first year before the operation and at a 5% level for the second year.

In terms of Efficiency (Asset Rotation Ratio), both the firms that went through an IPO and firms that were acquired by Private Equity experienced a deterioration in Efficiency throughout the four years. Moreover, there are statistically significant differences in Efficiency in the third and first year before the operation at a 10% and 5% level.

In terms of Capital Structure (Financial Autonomy), the medians have not, overall, changed, when comparing the fourth year before the operation and the first year before the operation. The results show that there is a difference in Capital Structure in the fourth year before the operation, between firms that went through an IPO and firms that were acquired by Private Equity that is statistically significant at a 1% level.

(38)

Globally, these results count as some evidence for significant differences in the operating performance and capital structure between firms that went through an IPO and firms that were bought by Private Equity.

3.5.3. Probit regression: Assets, Turnover and EBITDA

Table 9: Probit regression-Assets, Turnover and EBITDA

Table 9 gives detail regarding the probit regression model for the growth of Assets, Turnover and EBITDA between the firms that went through an IPO and the firms that were acquired by Private Equity in the four years prior to the firms either going through an IPO or being bought by Private. The dependent variable is a binary response variable that takes the value 1 if the firm was acquired by Private Equity and takes the value 0 if the firm went through an IPO. The independent variables (Assets, Turnover and EBITDA) were measured in percentage. Standard errors are reported under the coefficients in parenthesis. *, **, *** indicate that the firms which went through an IPO and the firms which were acquired by Private Equity are significantly different at the 10%, 5% and 1% level, respectively.

t-4 t-3 t-2 t-1

(39)

Turnover _(0.0227)0.0238 _(0.00351)0.00165 _(1.58e-05)1.50e-06 0.000428_(0.00121)

EBITDA _(0.00709)0.00175 -0.00122_(0.00378) -0.00194_(0.00179) _(0.0104)0.0112

Constant 1.162***_(0.0415) 1.138***_(0.0393) 1.018***_(0.0358) 1.032***_(0.0367)

Observations 1,518 1,670 1,811 1,890

The Probit regression was estimated in the four years previous to t, which represents the year in which the firms were acquired by Private Equity or went through an IPO.

The results regarding Assets indicate that in t-4 that Assets growth has a negative effect in the likelihood of a firm being acquired by Private Equity. This means that an increase in Assets growth will cause a decrease in the propensity of a firm being acquired by Private Equity. On opposite direction, the results show that in t-3 and t-4 that Asset growth has a positive effect in the likelihood of a firm being acquired by Private Equity. In t-1 the effect is negative again. The results are statistically significant for t-1 at a 1% level,

(40)

Turnover growth has a positive effect on the likelihood of being acquired by Private Equity in all years. Nonetheless, the results are not statistically significant.

EBITDA growth has a positive effect in years t-4 and in t-1 in the likelihood of a firm being acquired by Private Equity and a negative effect on years t-3 and t-2. The results are not statistically significant.

The results for Assets growth in the t-1 year are, again, consistent with Aslan and Kuman (2010), that state that firm size has a negative influence on the likelihood of going private and that firm size is positively related with the likelihood of going public, thus explaining the significant differences. Asset size is positively associated with market capitalization for firms that do IPOs and size is positively associated with stock liquidity. So smaller firms are more likely to go private. However, these results are not consistent with the findings of Nordström (2010).

Moreover, Turnover growth has, according Aslan and Kumar (2010), a negative impact on the likelihood of going private, since high Turnover growth is an indicator of a growth opportunity, which makes the firm more desirable from an acquisition standpoint. In order to facilitate the acquisition, firms go public.

The significant differences regarding EBITDA growth can be explained by Jensen (1986)’s argument, namely, that firms with higher free cash flows will be more likely to go public, thus explaining the significant differences.

3.5.4. Probit regression: Operating Performance and Capital Structure

(41)

Table 10: Probit regression-Operating Performance and capital structure

Table 10 gives detail regarding the probit regression model for the growth of Operating Performance (Return on Assets, EBITDA margin, Asset Rotation Ratio) and Capital Structure (Financial Autonomy) between the firms that went through an IPO and the firms that were acquired by Private Equity in the four years prior to the firms either going through an IPO or being bought by Private. The dependent variable is a binary response variable that takes the value 1 if the firm was acquired by Private Equity and takes the value 0 if the firm went through an IPO. The independent variables Operating Performance (Return on Assets, EBITDA margin, Asset Rotation Ratio) and Capital Structure (Financial Autonomy) were measured in percentage points. Standard errors are reported under the coefficients in parenthesis. *, **, *** indicate that the firms which went through an IPO and the firms which were acquired by Private Equity are significantly different at the 10%, 5% and 1% level, respectively.

t-4 t-3 t-2 t-1 Return on Assets (0.000224)5.14e-05 -0.000627(0.00277) -0.00318*(0.00176) 0.000704(0.00152) EBITDA margin -0.000298(0.000223) 1.51e-07 (6.21e-07) 4.59e-05* (2.61e-05) -2.67e-05 (2.14e-05) Asset Rotation Ratio 0.000307 (0.000238) (0.000899)0.000461 -0.000725(0.000812) 0.00172**(0.000781) Financial Autonomy 0.00457**(0.00229) -0.000694 (0.00203) -0.000990 (0.00178) 0.000584 (0.00124) Constant 1.319***_(0.0465) 1.280***_(0.0432) 1.153***_(0.0392) 0.996***_(0.0354) Observation s 1,417 1,567 1,700 1,830

(42)

The Probit regression was estimated in the four years previous to t, which represents the year in which the firms were acquired by Private Equity or went through an IPO.

The results show a positive effect of the Productivity (Return on Assets) growth on the likelihood of a firm being acquired by Private Equity in years t-4 and t-1 and a negative relationship in years t-3 and t-2. In t-2, the results are statistically significant at a 10% level.

The growth of Profitability (EBITDA margin) has a negative effect in the likelihood of a firm being bought by Private Equity in years t-4 and t-1 and has a positive effect on years t-3 and t-2. In t-2, the results are statistically significant at a 10% level.

The growth in Efficiency (Asset Rotation Ratio) has a negative effect on the likelihood of a firm going private in year t-2, having a positive effect in all other years. The results are statistically significant for t-1 at a 5% level.

The growth in Financial Autonomy has a positive effect in the likelihood of a firm being acquired by Private Equity in year 4 and t-1, while having a negative effect in the years t-2 and t-3. In t-2, the results are statistically significant at a 5% level.

These results are consistent with Nordström (2010), who finds that Productivity (Return on Assets) has a negative effect on the likelihood of a firm going private. However, the results regarding Profitability are inconsistent with both Nordström (2010) and Aslan and Kuman (2010).

In addition, the positive effect of Financial Autonomy has on the likelihood of is consistent with Nordström (2010). This result is in line with theory since many of the buyouts are leverage buyouts.

(43)

Meaning that the transaction is financed by debt usually secured by the buyout firms ‘assets or future cash flows. Moreover, it is also consistent with the view of Andrade and Kaplan (1998), in which firms with lower leverage are more attractive candidates for private equity-financed and leveraged buyouts.

4.CONCLUSIONS

Most studies regarding Private Equity are value creation and performance of buyouts and the studies regarding IPOs are related to performance. There is little academic research that relates both operating performance and capital structure variables with the decision of either going private or going public. This dissertation tries to fill this gap.

The aim of this dissertation is to analyze the impact of operating performance and capital structure of the firms in the of the going public and going private decision. A sample of 3847 Europeans firms was collected, containing accounting and financial data in order to compare and analyze the differences int both operating performance and capital structure between the firms that went public went through an IPO and the firms that were acquired by Private Equity.

The results given by the Wilcoxon rank-sum test suggest that there are differences in operating performance and capital structure

(44)

between firms that went through an IPO and firms that were acquired by Private Equity. The data shows that there are significant differences in terms of Productivity (Return on Assets), Profitability (EBITDA margin), Efficiency (Asset Rotation Ratio) and Capital Structure (Financial Autonomy). The results also demonstrate that both the firms that went through an IPO and the firms that were acquired by Private Equity show the same pattern of growth in operating performance and capital structure before going public or being acquired.

After identifying the existence of the differences, the next step was to figure how these differences impacted the outcome of a firm going IPO or being acquired by Private Equity. In order to achieve this, a Probit model was developed, The results obtained showed that Productivity (Return on Assets) has a negative effect on the likelihood of a firm being acquired by Private Equity, being consistent with the findings of Nordström (2010). On the other hand, the Profitability (EBITDA margin) has a positive effect on the likelihood of a firm being acquired by Private Equity, which is inconsistent with both Nordström (2010) and Aslan and Kuman (2010). Efficiency (Asset Rotation Ratio) also has a positive effect. In terms of Capital Structure (Financial Autonomy), the results show a positive effect on the likelihood of being acquired by Private Equity. This is consistent with Andrade and Kaplan (1998), that argue that firms with lower leverage are more attractive for Private Equity. In addition, Nordström (2010) argues that Private Equity investors look for firms with lower levels of leverage, since the operation is usually already financed by debt.

These results suggest that the Private Equity investor has knowledge and expertise that allows him to identify high-growth potential companies, which implies that the aim of is to assist the target firm in reaching its full potential. Private Equity has expertise

(45)

and superior knowledge in financial, governance and operational engineering (Kaplan and Strömberg ,2008), which allows the Private

Equity investor to improve the target firm not only by the use of leverage but also by the use of better governance policies and the adoption of more efficient in terms of operating performance, thus making the target firm better than before, which basically leads to value creation.

(46)

Acharya, V., Gottschalg, O., Hahn, M, Aand Kehoe, C. (2010). “Corporate Governance and Value Creation: Evidence from Private Equity”, SSRN Electronic Journal.

Achleitner, A., Braun, R., Engel, N., Figge, C. and Tappeiner, F. (2010). “Value Creation Drivers in Private Equity Buyouts: Empirical Evidence from Europe”. The Journal of Private Equity, 13(2), pp,17-27.

Andrade, G., and Kaplan, S. (1998).” How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed”, The Journal Of Finance, 53(5). 1443-1493.

Ang, J. and Brau, J. (2002). “Firm Transparency and the Costs of Going Public”, Journal of Financial Research, 25(1), pp,1-17.

Aslan, H. and Kumar, P. (2010). “Lemons or Cherries? Growth Opportunities and Market Temptations in Going Public and Private”. Journal of Financial and Quantitative Analysis, 46(02), pp,489-526.

Baker, G. and Wruck, K. (1989). “Organizational changes and value creation in leveraged buyouts”, Journal of Financial Economics, 25(2), pp,163-190.

Barden, Ronald S., Copeland, James E, Jr., Hermanson, Roger H. and Wat, Leslie (1986). “Going public--what it involves: A framework for providing advice to management”, Journal of Accountancy.

Becker, B., & Pollet, J. (2008). “The Decision to Go Private”, SSRN Electronic Journal, doi: 10.2139/ssrn.1108220.

Bharath, S. and Dittmar, A. (2010). “Why Do Firms Use Private Equity to Opt Out of Public Markets?”, Review of Financial Studies, 23(5), pp.1771-1818.

(47)

Boot, A., Gopalan, R. and Thakor, A. (2006). “The Entrepreneur's Choice between Private and Public Ownership”, The Journal Of Finance, 61(2), 803-836, http://dx.doi.org/10.1111/j.1540-6261.20060.0855.x.

Brau, J. and Fawcett, S. (2006).” Initial Public Offerings: An Analysis of Theory and Practice”, The Journal of Finance, 61(1), pp.399-436.

Cao, J. and Lerner, J. (2006). “The Performance of Reverse Leveraged Buyouts”, SSRN Electronic Journal.

Chemmanur, T. and Fulghieri, P. (1999). “A Theory of the Going-Public Decision, Review Of Financial Studies”, 12(2), 249-279, http://dx.doi.org/10.1093/rfs/12.2.249.

Chung, J. (2011). “Leveraged Buyouts of Private Companies”, SSRN Electronic Journal.

Degeorge, F. And Zeckhauser, R. (1993). “The Reverse LBO Decision and Firm Performance: Theory and Evidence”, The Journal of Finance, 48(4), pp.1323-1348.

Guo, S., Hotchkiss, E. and Song, W. (2009). “Do Buyouts (Still) Create Value”, SSRN Electronic Journal.

Harris, R., Niu, D. and Murray, G. (2006). “The Operating Performance of Buyout IPOs in the UK and the Influence of Private Equity Financing”, SSRN Electronic Journal.

Jain, B. and Kini, O. (1994). “The Post-Issue Operating Performance of IPO Firms”, The Journal of Finance, 49(5), p.1699.

Jensen, M. (1986). “Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers”, SSRN Electronic Journal.

Jensen, M. (1999). “Eclipse of the Public Corporation”, SSRN Electronic Journal.

(48)

Kaplan, S. (1989). “The effects of management buyouts on operating performance and value”, Journal of Financial Economics, 24(2), pp.217-254.

Kaplan, S. (1989),” Management Buyouts: Evidence on Taxes as a Source of Value”, The Journal of Finance, 44(3), pp.611-632.

Kaplan, S. and Schoar, A. (2003). “Private Equity Performance: Returns, Persistence and Capital Flows”, SSRN Electronic Journal.

Kaplan, S., & Strömberg, P. (2008). “Leveraged Buyouts and Private Equity”, SSRN Electronic Journal.

Kim, W. and Weisbach, M. (2006). “Motivations for Public Equity Offers: An International Perspective”, SSRN Electronic Journal.

Kosedag, A. and Lane, W, R. (2002). “Is it Free Cash Flow, Tax Savings, or Neither? An Empirical Confirmation of Two Leading Going‐private Explanations: The Case of ReLBOs”, Journal of Business Finance & Accounting, 29: 257-271.

Kutsuna, K., Okamura, H. and Cowling, M. (2002).” Ownership structure pre- and post-IPOs and the operating performance of JASDAQ companies”, Pacific-Basin Finance Journal, 10(2), pp.163-181.

Lerner, J. (1994). “Venture capitalists and the decision to go public”, Journal of Financial Economics, 35(3), pp.293-316.

Leslie, P. and Oyer, P. (2009).” Managerial Incentives and Value Creation: Evidence from Private Equity”, SSRN Electronic Journal.

Lichtenberg, F. and Siegel, D. (1990). “The effects of leveraged buyouts on productivity and related aspects of firm behavior”, Journal of Financial Economics, 27(1), pp.165-194.

IPO vs Private Equity: analysis and comparison of firms in a pre-IPO/buyout stage