Private Equity Acquisition Of Substance Use Treatment Centers Increases Probability Of Public Health Insurance Acceptance.

This paper documents connected leverage buyout (LBO) transactions in which acquiring private equity (PE) firms and target firms share common relationship banks. Connected LBO deals have lower prices, higher valuations and better qualities. Firms share common relationship banks as PE firms are 7% more likely to become targets in LBO transactions led by the same group of PE firms. Common relationship banks which build bridge between PE firms and target firms are 35% higher in probability to be chosen as lead bank in these LBO transactions and increase the future business interactions with these PE firms as well. I argue that banks build bridges between targets and acquirers in LBO transactions with their private information obtained through past business relations not only to strengthen business tie with PE firms, but also to generate business opportunity to boost their short and long run profitability.

In this paper, we document connected leveraged buyout (LBO) transactions in which acquiring private equity (PE) firms and target firms share common relationship banks. We find that lower prices, higher valuations, and better quality targets characterize connected LBOs. Not only are firms that share common prior relationship banks with PE firms 7% more likely to become targets in LBOs led by the same PE firms, but common relationship banks that build bridges between PE firms and target firms are 35% more likely to be chosen as the lead debt financier in connected LBOs. These bridge-building banks also increase their future business with the PE firms. Taken together, these results suggest that in connected LBOs, banks do indeed use private information obtained through past business relations to build bridges between targets and acquirers.

Private equity (PE) firms acquire and grow physician practices through add-on consolidation, generating outsized returns on the sale of the acquisition in 3-8 years ("exit"). Private equity's abbreviated investment timeline and exit incentives may deter long-term investments in care delivery and workforce needed for high-quality care. To our knowledge, there has been no published analyses of the nature or duration of PE exits from physician practices. We address this knowledge gap by using novel data to characterize PE exits from dermatology, ophthalmology, and gastroenterology, physician specialties with the largest number of acquisitions between 2016 and 2020. Of 807 acquisitions, over half (51.6%) of PE-acquired practices underwent an exit within 3 years of initial investment. In nearly all instances (97.8%), PE firms exited investments through secondary buyouts, where physician practices were resold to other PE firms with larger investment funds. Between investment and exit, PE firms increased the number of physician practices affiliated with the PE firm by an average of 595% in 3 years. Findings highlight the rapid scale of ownership change and consolidation under PE ownership and motivate evaluations by policymakers on the effects of PE ownership over the life cycle of PE investments.

This paper investigates the relationship between private equity transaction returns, durations, firm motivations and firm size/skill to suggest that the existing conclusion to the debate on the nature of private equity - ‘the heterogeneous view’ - is limited, shallow and incomplete. The paper argues that a private equity firm’s ‘skill’ is the most important factor that determines its success and suggests that private equity’s nature is one of short-term ‘shock therapy’; but that the majority of private equity transactions are prevented from embodying this state to the limitations of their sponsoring private equity firm’s skill in achieving high transaction returns and short transaction durations.A three-pronged approach is taken to provide evidence for this theory: examining secondary literature on the private equity industry and corporate governance to develop the context of the research question; analysing empirical evidence on a global database of 11,704 private equity transactions from 1969-2012 to investigate it; and analysing case-study evidence to provide supplementary information on specific aspects of the study. Practical recommendations for the Oxford Private Equity Institute, private equity firms and corporations are proposed along with further research possibilities.

Manuscript Type: Empirical Research Question/Issue: We examine the governance role of private equity (PE) firms in post-LBO companies in the US. We propose and test whether PE firms remove entrenched CEOs or CEOs who cause agency problems. Research Findings/Insights: Using archival data from a sample of 126 PE sponsored LBOs in the USA between 1990 and 2006, we document a CEO turnover rate of 51 per cent within two years of an LBO announcement. We find that the boards of directors replace CEOs in companies with high agency costs, as measured by low leverage and a high level of undistributed free cash flow. In addition, unlike the boards of directors in public companies, the boards in post-LBO companies tend to replace entrenched CEOs. Finally, the boards are more likely to replace CEOs if pre-LBO return on assets is low. Theoretical/Academic Implications: According to the agency theory, a PE-sponsored LBO is a new organizational form that reduces agency costs by enhancing corporate governance. This study uses CEO turnover as a setting to test that prediction. We find that PE firms replace CEOs who can cause agency problems, thus providing empirical support for the proposition that PE firms improve corporate governance in LBO companies. Practitioner/Policy Implications: This study offers insights to policy makers who are interested in regulating PE firms. Our results suggest that, in the US, PE firms provide effective corporate governance mechanisms by replacing incompetent and entrenched CEOs. In addition, our results provide a set of factors for PE firms to consider when they make CEO retention decisions.

Private equity acquisition of medical specialty practices has increased in recent years. With the projected increase in the volume of elective, ambulatory orthopaedic procedures, especially in the outpatient setting, private equity firms are increasingly investing in orthopaedic practices. The purpose of this cross-sectional study was to report recent trends and variations in acquisitions of US orthopaedic practices by private equity firms and other institutional investors (venture capital firms, trusts, and large investment companies). Acquisition data through January 1, 2020, were collected and analyzed using various financial databases, supplemented with publicly available information from financial news outlets, press releases, and financial analyst and industry reports. Disclosed financing data were also included, in addition to pertinent geographic information (state, city, and zip code) of the target practices. Between 2004 and 2019, 41 orthopaedic practices and surgeon groups across 22 states were acquired by 34 private equity and other investment firms. A significant increase was observed in the number of acquisitions between 2017 and 2019, consisting of 70.7% of total transactions during the study period, with a statistically significant upward yearly trend (P = 0.002). The compound annual growth rate in acquisition volume was 29.2% during the study period. A disproportionate share of private equity acquisitions took place in the South, where more than half (51.2%) of the total transactions took place. Firms were markedly more likely to acquire or invest in practices located in major metropolitan areas (population more than 1 million) compared with those in mid-sized or rural areas (70.7%, 17.1%, 12.2%, respectively; P < 0.001). Private equity acquisition of orthopaedic surgery practices has increased markedly in recent years. The effect of private equity acquisition on physician independence, practice management, and procedure reimbursement remains unclear and may be important to explore as practice management evolves. Prognostic Level III.

Private equity (PE) firms reduce product commercialization in their Leveraged Buyout (LBO) investments. This reduction is associated with a product focus in the product commercialization strategy of the LBO. Using a sample of LBOs against a control sample of firms that failed to close the LBO transaction and using trademarks as a measure of product commercialization, I find that PE firms reduce trademark filings, but they accompany it with the reduction in the number of product classes which is a sign of product focus. The effect is opposite when managerial incentives are not aligned. The level of deal leverage does not affect PE firms' product commercialization strategy; neither does PE firms' experience.

Although more and more private equity (PE) firms are integrating environmental, social, and governance (ESG) factors into their investment strategies, there is no clear understanding of their reasons, the details of their activities, the tools they use or the barriers they face. Our study covers these gaps and provides an overview of current trends. We adopted a mixed-method approach, using both qualitative and quantitative data. We first interviewed ESG and PE experts and then submitted a survey to top PE players. Most PE firms integrate ESG issues because investors and other stakeholders pay increasing attention to them. We found that the tools used to assess ESG factors are checklists and that only a few PE firms used external advice from industry experts. Among the main barriers that PE firms face are difficulties in finding information and the lack of a comprehensive way to measure ESG issues. Our findings reveal that PE firms have two main approaches to ESG integration—risk management and value creation—and that the former is dominant. We contribute to the literature by explaining ESG integration in the PE industry and showing that an opportunity for value creation is being missed.

The present study attempted to examine the comparative return performance of private and non-private equity firms in India. For this purpose, we have used deal-level data retrieved from venture intelligence for the period ranging from 2009 to 2019. To measure the return of private equity, we applied Return multiple, internal rate of return (IRR) and extended internal rate of return (XIRR). We have used the Nifty 50 benchmark index as a proxy for investigating the return generated by public market returns. Study findings revealed that private equity firms outperformed the benchmark Index return and open-up routes for global and domestic investors for further investment. We identified that most private equity deals exited via the M&amp;A route; some also followed the IPO route to exit privately held firms. Results differ from prior studies advocating IPO as the prime mechanism private equity managers use for exiting. Further, returns measured under both routes outperformed the public market index Nifty 50. The study found that 84% (277 Deals) of deals provided a positive cash multiple in the last decade and outperformed the benchmark index. These findings are helpful for private equity firms and fund managers to make investment decisions in the Indian private equity market.

This paper theoretically and empirically investigates the idea that private equity (PE) firms are not an economically superior organizational arrangement to public corporations but may profit from applying forms of parenting activities beyond governance measures. Using a unique sample of 143 global PE firms, evidence that PE firms that actively engage in managing their portfolio companies rather than purely relying on arbitrage and financial leverage add superior value to their shareholders was found. However, while results prove a strong positive association between the engagement of PE firms in actively developing business strategies for the portfolio companies and their overall performance they also show that PE firms underperform if they try to exploit synergies. Beyond providing empirical evidence of the explanatory power of the parenting advantage concept for the PE industry, this paper contributes to theory development in the field of strategic management.KeywordsPrivate EquityParental ContributionAsset ManagementParenting StrategyGovernance PracticeThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Private equity firms and publicly traded companies have been acquiring US hospice agencies; an estimated 16% of US hospice agencies are owned by private equity (PE) firms or publicly traded companies (PTC). To examine the association of PE and PTC acquisitions of hospices with Medicare patients' site of care and clinical diagnoses. This cohort study of US hospice agencies used a novel national database of acquisitions merged with the Medicare Post-Acute Care and Hospice Public Use File for 2013 to 2020. Changes in sites of care and patient characteristics for hospice agencies acquired by PE or PTCs were compared with changes for patients in nonacquired for-profit hospice agencies. Private equity and publicly traded company acquisitions. This study used a difference-in-differences approach within an event-study framework to examine the association of PE and PTC acquisitions of hospice agencies with changes in patient diagnoses and sites of care. Dependent variables were annual hospice-level measures of the Hierarchical Condition Category (HCC) score and proportion of patients diagnosed with cancer or dementia. Sites of care included the proportion of patients receiving hospice care in their personal home, nursing home, or assisted living facility. A total of 158 hospice agencies acquired by PEs, 250 acquired by PTCs, and 1559 other for-profit hospice agencies were included. Preacquisition, hospice agencies that would later be acquired by PE or PTC served a mean (IQR) 30.1% (12.0%-44.0%) and 29.4% (13.0%-43.0%) of their patients in nursing homes respectively, a greater proportion compared with the 27.1% (8.0%-43.8%) served by for-profit hospices that were never acquired. Agencies acquired by PE between 2014 and 2019 saw a significant relative increase of 5.98% in dementia patients (1.38 percentage points; 95% CI, 0.35-2.40 percentage points; P = .008). In PTC-owned hospices, the proportion of patients receiving care at home increased by 5.26% (2.98 percentage points; 95% CI, 1.46-4.51 percentage points; P < .001), the proportion of dementia patients rose by 13.49% (3.11 percentage points; 95% CI, 2.14-4.09 percentage points; P < .001), and the HCC score decreased by 1.37% (-3.19 percentage points; 95% CI, -5.92 to -0.47 percentage points; P = .02). These findings suggest that PE and PTCs select patients and sites of care to maximize profits.

Using data on international leveraged buyout (LBO) investments, we analyze whether lack of proximity impedes the ability of U.S. private equity (PE) investors to successfully invest across borders. In particular, U.S. PE investors have substantial experience in monitoring and supporting portfolio firms, but have to trade off this advantage with the difficulty of monitoring cross-border LBO investments that are further away. We exploit the exogenous shock to “effective” proximity of U.S. PE investors to other countries due to open sky agreements (OSA) signed between the U.S. and the countries of potential LBO target firms. We find that increase in proximity due to the ease of travel afforded by an OSA between the U.S. and another country has a positive and statistically significant impact on U.S. PE firms’ propensity to invest in LBOs in that country. Further, improvements in ease of travel between the target firm country and the U.S. are followed by more successful LBO investments in those countries, and this effect is driven by investments made by U.S. PE investors. In addition, for the set of LBOs for which OSAs occur after the deal, LBOs backed by U.S. PE firms perform better when an OSA happens immediately subsequent to the deal rather than later. Moreover, our results do not reflect access to U.S. product or public financial markets, since we do not find any evidence that OSAs have an impact on success rates of investments by non-U.S. PE firms. Our results are broadly consistent with the idea that proximity is an important factor in PE investors’ decision to invest across borders. Further, proximity impacts the success of cross-border LBOs at least partly due to the effect of active monitoring by PE investors.

Private equity (PE) firms take an active role in the control of invested organizations. However, despite the growing economic importance of PE financing, there has been limited investigation into the control mechanisms used to manage these relationships. Most prior research examines PE as an alternate structure of governance, typically in comparison to governance of publicly owned firms, without providing detail on the actual mechanisms used in managing these relationships. Through multiple case study analyses this study explores the forms of control that are exercised by PE firms and the factors associated with their relative importance in the PE relationship. The study finds that while financial contracting plays an important role for control, there is significant variation in the formal control mechanisms that PE firms employ. Additionally, some PE firms rely heavily on social mechanisms to achieve control outcomes. The study points to some of the factors that are related to these differences, and thus provides an initial framework for understanding variation in the control of PE relationships.

In a study of 1,322 private-to-private transactions the author finds support for the hypothesis that private equity (PE) firms play an important role as market makers. A number of empirical results support this claim. First, part of what PE firms do is to keep an inventory of firms on which they do little operational improvements. In cases where PE firms exit their investments in less than 18 months of ownership, so-called quick flips, no statistically significant operating enhancing measures are observed. As time passes, the probability that an asset is sold to an industrial buyer in a trade sale is reduced. Overall, the results suggest that PE firms hold a menu of firms which they keep available, first, to industrial buyers and, second, for other PE firms. <b>TOPICS:</b>Private equity, portfolio management/multi-asset allocation, statistical methods, global

In this chapter, Jamie Morgan describes the logic at work in private equity (PE) firms and how they articulate hierarchy-type global wealth chains. Morgan explains how PE firms use leveraged buyouts to concentrate and accelerate heightened returns to the firm within defined time period. This involves the deployment of a series of strategies that have the effect of reducing taxable income of acquired firms. The key asset strategies here are temporally based. PE firms take acquisitions into private ownership by using huge amounts of debt to buy them. This debt becomes a wealth chain asset in that it is tax deductible. Returns to the PE firm can flow across multiple corporate entities. Further, returns to the PE partners are taxed at the lower capital gains rate rather than as income tax. Using case examples from the UK, Morgan elaborates on how PE firms exploit global wealth chains.