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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.
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.