Previous studies document a large positive effect of private equity ownership on operating performance between 1980 and 1990 while evidence on the more recent buyout wave is mixed. We revisit the evidence on post-LBO performance and offer an additional explanation for the varied and time-inconsistent results found in the literature: the effect of accounting for LBO transactions and its change over time. Using hand-collected financial statements for 183 U.S. public-to-private LBOs, we illustrate how previously used proxies for operating performance suffer from an accounting distortion induced by the buyout transaction. We reproduce the results of previous studies. However, once proxies are modified slightly to account for the LBO process, we find no robust evidence of post-buyout improvements in public-to-private LBOs, regardless of the time period of the study.

Using an original dataset of fully monetized LBOs initiated from 1990 to 2006, we examine the emergence of an entrepreneurial transaction strategy focused on revenue growth and its incidence relative to more “classic” strategies focused on operating efficiencies. We additionally show how the conventional focus on returns measured at an IPO or acquisition frequently overstates actual realized returns to sponsors. Using this return data, we evaluate how “classic” and “entrepreneurial” strategies are associated with sponsors' equity returns. Among successful LBOs, LBOs that enhance operating efficiencies produce the highest “exit” returns; however, LBO sponsors commonly fail to monetize these returns due to delays associated with liquidating portfolio positions. In contrast, LBOs that focus on growing revenues are associated with higher fully realized equity returns, suggesting more sustainable value-creation for sponsors and their investors.