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Are Buyout Sponsors Market Timers In RLBOs?

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Executive Summary

This paper examines the exit strategy of buyout sponsors in RLBOs (Reverse Leveraged Buyouts). LBO restructuring decision is affected by the market timing of sponsors. LBO duration is negatively related to hot IPO market proxy and industry valuation, suggesting sponsors spend less time in LBOs under favorable external market conditions. RLBOs with shorter LBO duration experience greater deterioration of performance after IPOs. Listing of immature LBOs (quick flip) leads to a high probability of financial distress. Buyout sponsors continue exiting post IPO. They keep shorter post-IPO presence when RLBOs have higher cash flow. Reputable sponsors with greater ownership are more likely to exit via facilitating takeovers.

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