Evaluation of the Effectiveness of European Companies in Leveraged Buyouts

LBO mechanism using debt financing is one of the effective financial instruments that the company uses to improve financial performance and solve a number of problems in the functioning of the financial and management system. Increasing the value of the company occurs through changes in financial factors, such as increasing financial leverage, which reduces free cash flow, which in turn reduces agency costs to resolve conflicts between the owner and managers and increases financial performance, despite the debt burden. In addition, the change in the structure of the management after the repurchase has an important role and contributes to increasing entrepreneurial abilities and competent distribution of funds, asset management and capital of the company. In this paper, the European market for private financing was analyzed. The analysis revealed that the average gross domestic rate of return for LBO transactions was 38%, and the main factors affecting the growth in value were the effect of financial leverage - 47.88%, profit growth before tax - 24.11%, the effect free cash flow 15.84% and the effect of business expansion - 9.01%. In addition to these findings, a number of assumptions were made regarding the non-financial characteristics of transactions and their impact on overall performance indicators. Companies belonging to the wholesale and retail trade sector have the most significant profitability, while high-tech companies as a whole have rather low performance indicators due to significant technological costs. Thus, this paper considers a completely new comparative approach to estimating the redemption of LBO through two models having the opposite structure.