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This paper provides the first empirical investigation of the disclosure of use of proceeds in private equity (PE)-backed initial public offerings (IPOs). We find that PE-backed issuers primarily use the IPO as a means of repaying claimholders. The subset of PE-backed issuers that disclose “repay debt” as the use of proceeds have high ex-ante debt-to-total assets ratios and use the IPO proceeds to reduce them by approximately 31 percentage points post IPO. Further results suggest that the need to repay claimholders in PE-backed IPOs conflicts with the implementation of other stated use-of-proceeds categories related to M&A and R&D. Finally, we provide evidence that PE backing reduces the adverse impact of an uninformative use-of-proceeds disclosure on underpricing.
The more the merrier?
(2022)
This paper explores how diversity among lead partner teams (LPTs) of private equity (PE) funds affects buyout performance. We argue that there is a trade-off between the ‘bright side’ of diversity (i.e. improved decision-making due to a broader set of perspectives) and the ‘dark side’ (i.e. deteriorated decision-making due to a potential for clashes and a lack of cooperation). Our theoretical framework suggests that the net effect on performance depends on whether LPTs are diverse in socio-demographic or occupational aspects. To test this hypothesis, we develop a comprehensive index that measures LPT diversity along six dimensions. Using a sample of 241 buyouts and 547 involved PE partners, we find that higher scores in the socio-demographic component (gender, age, nationality) are associated with higher deal returns and multiple expansions. The opposite is true for higher scores in the occupational component (professional experience, educational background, university affiliation). Further results suggest that the ‘bright side’ of diversity gets relatively more important in case of complex buyouts and uncertain deal environments.
We investigate the pricing and value creation in private equity-backed buy-and-build (B&B) strategies using a sample of 3399 buyouts between 1997 and 2020 as well as proprietary performance data. We find that private equity firms pay sizable premiums for B&B platforms. The transaction multiples are similar to those paid by strategic acquirers for matched targets. Despite paying high premiums, private equity firms generate above-average equity returns in B&B strategies. This is because of both higher top-line growth and multiple expansion. To back up our empirical results and shed light on decision-making in B&B strategies, we present evidence from the field. Survey results from 32 interviews with private equity managers provide novel insights into B&B rationale, valuation practices, pricing, value creation, acquisition processes and execution.
This chapter examines the enterprise value growth of private equity (PE)-backed buyouts in small and medium-sized enterprises (SMEs). Using a comprehensive sample of PE buyouts from 1997 to 2016 in 59 countries, we find that enterprise value growth rates are significantly higher if the portfolio firm is a small or medium-sized enterprise prior to the buyout. These results also hold for subsequent buyout rounds, i.e., the enterprise value growth of both the primary and secondary buyout is higher if the portfolio firm is a SME prior to the initial buyout. Moreover, we show that good access to finance, management buyouts, and SME investments by large funds have a negative effect on SMEs’ enterprise value growth, whereas a PE firm’s venture capital focus reinforces the positive enterprise value growth of SME portfolio firms. Our results are robust to different tests designed to mitigate selection concerns.
Using a sample of 18,225 global buyouts, we find that management buyouts (MBOs) are significantly more likely to occur if economic policy uncertainty (EPU) increases. This finding is consistent with the idea that EPU provides an opportunity for insiders to capitalize on private information and time the market. Further results suggest that market timing pays off on average. We find that MBOs achieve more favorable buyout prices and greater post-buyout operating improvements than institutional buyouts during times of high EPU. Our results hold when exploiting close national election races as a quasi-natural experiment for EPU.
This paper investigates whether private equity (PE)-backed acquirers have a “parenting advantage” in the mergers & acquisitions (M&A) market. We employ a sample of 788 PE-backed firms and a carefully matched control group of 6,652 non-PE-backed peers, for which we observe the entire acquisition history over a 19-year time span. Difference-in-differences estimates suggest that PE backing induces a sizeable but short-lived boost to acquisition activity, while the type and complexity of acquisitions are similar to those of non-PE-backed peers. These results are consistent with the idea that PE backing enhances execution and speed in the M&A market. We find that portfolio firms benefit from this boost through improved valuations and margins. The extent to which this is true, however, depends on the institutional setting of the PE owner. Our results indicate that add-on acquisitions are detrimental if PE owners are late buyers or suffer from limited attention problems.
Cross‑border buyout pricing
(2021)
Using a dataset of 1149 global private equity transactions, we fnd that cross-border
buyouts are associated with signifcantly higher valuation multiples than domestic
ones. We attribute this fnding to informational disadvantages of foreign acquirers.
Consistent with this idea, we fnd that the spread in valuation multiples narrows
when the target operates in a country with high accounting standards, when it was
publicly listed prior to the buyout, and when information production is facilitated
due to large frm size. Further results suggest that local partnering in a syndicate
serves as an efective remedy to avoid adverse pricing efects. The spread in valuation multiples is also less pronounced for large buyout funds, presumably because
they draw on sufcient organizational resources to cope with cross-border-related
transaction costs.
Das Center for Corporate Transactions & Private Equity (CCTPE) an der HHL Leipzig Graduate School of Management ermittelt vierteljährlich Multiplikatoren, Betafaktoren und Eigenkapitalkosten für den deutschen Kapitalmarkt und stellt diese CORPORATE FINANCE zur Verfügung. Im Folgenden finden Sie die entsprechenden Daten zum Stichtag 15.01.2020.
Das Center for Corporate Transactions & Private Equity (CCTPE) an der HHL Leipzig Graduate School of Management ermittelt vierteljährlich Multiplikatoren, Betafaktoren und Eigenkapitalkosten für den deutschen Kapitalmarkt und stellt diese CORPORATE FINANCE zur Verfügung. Im Folgenden finden Sie die entsprechenden Daten zum Stichtag 15.04.2020.
Das Center for Corporate Transactions & Private Equity (CCTPE) an der HHL Leipzig Graduate School of Management ermittelt vierteljährlich Multiplikatoren, Betafaktoren und Eigenkapitalkosten für den deutschen Kapitalmarkt und stellt diese CORPORATE FINANCE zur Verfügung. Im Folgenden finden Sie die entsprechenden Daten zum Stichtag 15.07.2020.