How Does an LBO Impact the Target's Industry?

We document the implications of an LBO for the target firm's peers in terms of follow-on acquisitions, alliances, investment, and governance changes. LBOs tend to lead overall merger activity, predicting both more LBOs and strategic acquisitions in the industry. LBOs predict significant changes to investment outlays, strategic alliances, and anti-takeover provisions. Tests show that our evidence is most consistent with LBOs causing or signaling private information about optimal changes to the industry rather than LBO sponsors simply selecting into changing industries. Our study sheds light on LBOs' role in merger activity as well as their motivation