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This paper analyzes the influence Leveraged Buyouts (LBOs) have on the operating performance of the LBO target companies’ direct competitors. A unique and hand-collected data set on LBOs in the United States in the period 1985-2009 allows us to analyze the effects different restructuring activities as part of the LBO have on the competitors’ revenues. These restructuring activities include changes to leverage, governance, or operating business, as well as M&A activities of the LBO target company. We find that although LBOs itself have a negative influence on competitors’ revenue growth, some restructuring mechanisms might actually benefit competing companies.
Using data of US domestic mergers and acquisitions transactions, this paper shows that acquirers have a preference for geographically proximate target companies. We measure the ‘home bias’ against benchmark portfolios of hypothetical deals where the potential targets consist of firms of similar size in the same four-digit SIC code that have been targets in other transactions at about the same time or firms that have been listed at a stock exchange at that time. There is a strong and consistent home bias for M&A transactions in the US, which is significantly declining during the observation period, i.e. between 1990 and 2004. At the same time, the average distances between target and acquirer increase articulately. The home bias is stronger for small and relatively opaque target companies suggesting that local information is the decisive factor in explaining the results. Acquirers that diversify into new business lines also display a stronger preference for more proximate targets. With an event study we show that investors react relatively better to proximate acquisitions than to distant ones. That reaction is more important and becomes significant in times when the average distance between target and acquirer becomes larger, but never becomes economically significant. We interpret this as evidence for the familiarity hypothesis brought forward by Huberman (2001): Acquirers know about the existence of proximate targets and are more likely to merge with them without necessarily being better informed. However, when comparing the best and the worst deals, we are able to show a dramatic difference in distances and home bias: The most successful deals display on average a much stronger home bias and distinctively smaller distance between acquirer and target than the least successful deals. Proximity in M&A transactions therefore is a necessary but not sufficient condition for success. The paper contributes to the growing literature on the role of distance in financial decisions.