Option to Acquire, LBOs and Debt Ratio in a Growing Industry

In this paper, we investigate LBO in a growing industry where the target company has a growth option. Especially, we focus the bidder’s option to acquire the target company. An important setting is that the optimal timing is determined under the capital constraint. As our main results, we show that a growth option leads to delay in LBO, high leverage and low risk, and that default risk has the opposite sensitivity before/after growth.