Buyouts tend to come in waves. The first arrived in the 1980s, when a series of high-profile leveraged buyouts shook the corporate world. Buyouts surged again in the mid-1990s, the late 1990s, the early 2000s, and around 2006.
In peak years, there were nearly a hundred buyouts — in off years, as few as 10. The 2008 financial crisis is a striking reminder of this boom-bust feature of buyout markets. At the bottom of the market in 2008 we counted as little as 10 deals; the value of these deals was also low at 48 basis points fraction of total stock market capitalization.
As the economy recovered, we have seen a resurgence of buyouts with a value of 126 basis points of the market in 2010. Spectacularly, the once rare “megadeals” seem to be back. Both Heinz and Dell were moved from public to private markets that year, and both transactions each reached the $25 billion mark.
These developments raise broader questions: Why should buyouts follow a boom-bust pattern? And what are the conditions that cause buyouts to surge one year and plunge the next?
Read the full post at Fortune.
Erik Loualiche is an Assistant Professor of Finance at the MIT Sloan School of Management.