Very Large Group Private Practices/Management Organizations.

Bank-affiliated private equity (PE) groups account for 30% of all PE investments. These affiliated groups’ market share is highest during peaks of the PE market, as is the fraction of transactions where the parent bank leads the loan syndicate (parent-financed deals). Bank-affiliated deals are similar in characteristics and financing to stand-alone deals, but have worse outcomes if consummated during the peaks of the credit market. Parent-financed deals enjoy significantly better financing terms than standalone deals, but do not exhibit better performance. The parent-financing advantage in loan terms is concentrated during credit market peaks when banks tend to syndicate more of the loans to external loan investors, and is not explained by the banks’ previous relationships with the targets, the PE groups’ reputations, or the banks’ prominence in structured financing markets. Banks’ involvement in private equity investments provides significant cross-selling opportunities. Collectively, this evidence is consistent with banks’ taking advantage of favorable credit-market conditions.

In this paper, we examine whether the reputation of the acquiring private equity group (PEG) is related to the financing structure, loan contract terms, and valuation of LBOs. Using a sample of 181 public-to-private leveraged buyouts (LBOs) completed during the January 1, 1997 to August 15, 2007 period, we find that buyouts sponsored by high reputation funds pay narrower loan spreads, have fewer and less restrictive financial loan covenants, use less traditional bank debt, and borrow more and at a lower cost from institutional loan markets. In addition, PEG reputation is positively related to the amount of leverage used to finance the buyout. While we find that reputation is related to the amount of leverage used, and leverage is significantly related to buyout pricing, we do not find any direct effect of reputation on buyout valuations. We also find that deals sponsored by high reputation PEGs are less likely to experience financial distress or bankruptcy ex-post. The evidence is consistent with the hypothesis that deals involving reputable PEGs are perceived as less risky by creditors because reputable PEGs are more skillful in selecting and monitoring investments or because reputation serves to mitigate the agency costs of debt and thus lowers the need for bank monitoring and control. We also find that macroeconomic conditions (e.g. credit risk spreads), growth prospects, ex-ante risk, and deal size also impact buyout financing terms and valuations. Overall, our results suggest that the increase in leverage and the decline in both the proportion of bank debt financing and the restrictiveness of covenants in recent deals reflect in part the involvement of experienced PEGs in recent buyouts.

Risk and performance of bonds sponsored by private equity firms

Venture Capital and Private Equity: A Course Overview

The role of private equity group reputation in LBO financing

We investigate the impact of the reputation of a private equity group (PEG) on financing costs in leveraged buyouts (LBOs). PEGs with a strong reputation have superior selection abilities and may be able to obtain cheaper LBO loans due to their role in limiting moral hazard or their impact on lenders’ bargaining power in loan contract negotiations. We examine a sample of 4,111 credit facilities within 1,524 PEG-sponsored LBO loans in North America and Europe between 1993 and 2009. After controlling for other borrowers’ characteristics, the financing contract, and other factors, we find that PEGs’ reputation indeed lowers financing costs. The size of the effect depends crucially on the chosen syndicate structure. The effect on credit spreads is much stronger when the loan syndicate is highly concentrated. The literature reveals that concentrated syndicate structures are chosen by less transparent and more bank-dependent borrowers. We therefore conclude that well-reputed PEGs reduce financing costs because they are able to alleviate the effects of information monopolies that arise when asymmetric information limits the degree of competition between financing banks.

Private equity leveraged buyouts in European telecoms: The case of Eircom

The impact of private equity on employment outcomes arouses considerable controversy. Critics claim that private equity buyouts bring huge job losses, while private equity groups claim large employment gains. To address the issue, we construct and analyze a new dataset that overcomes many of the limitations in previous research. We examine U.S. private equity transactions from 1980 to 2005, following 4,500 target firms and more than 200,000 establishments before and after acquisition by private equity groups. We compare employment outcomes at target firms and their establishments to controls that have no private equity ties and that are similar in terms of industry, size and age. Our key findings are as follows: (1) Employment declines at target establishments relative to controls in the wake of private equity buyouts. (2) Target establishments create roughly as many new jobs as control establishments post-buyout, but they destroy old jobs at a much faster pace. (3) However, target firms also create new jobs in new establishments at a much faster pace than control firms. Once we account for new establishments opened post-buyout, the net job loss at target firms relative to controls is about 3-4% of initial employment. (4) The sum of gross job creation and destruction rates is much higher at target firms than at controls in the wake of private equity buyouts. (5) These effects differ considerably across broad industry groups and between public-toprivate and private-to-private transactions. Taken together, our results suggest that private equity groups act as a catalyst for creative destruction in the labor market, and that their employment effects vary greatly by sector and type of target.

To explore the impact of private equity ownership of ophthalmology practices on the success of their clinical research programs. Private equity partnership in the clinical research space has been steadily occurring over the past decades. In addition to contract research organizations, private equity groups have also consolidated multiple independent clinical research networks. By investing in an increasing number of retina practices, one private equity group is attempting to create a synergistic relationship between clinical practice and clinical research with the goal of supporting a larger, more robust clinical research network. Although there are physician concerns about the potential deleterious effects of private equity ownership on clinical research capabilities, private equity support has the potential to be an important stimulus for clinical research growth. http://links.lww.com/COOP/A48.

This paper examines the private equity investment landscape in African land and agriculture markets by exploring two underlying questions: (1) Within the global land grab trend, how is power manifested for private equity investors? and (2) What are the development implications of private equity-backed investments? The essay begins with an overview of the recent rise of private equity in African land markets. It then analyzes the power relations embedded in this trend, particularly exploring the issues of information asymmetry and ‘creative destruction’ inherent in private equity finance, and their implications for governance and labour. Finally, the paper examines the power dynamics that characterize the relatively new relationship between private equity groups and development finance. Drawing on several illustrations of the World Bank Group's involvement in private equity-backed land investments, this paper demonstrates how the overlapping interests between development finance and private equity groups, in part, explain private equity's presence in emerging farmland markets.

Currently investing an estimated $8 billion in private equity, single-family offices (SFOs) represent an attractive option to fundraising in today’s highly competitive environment. Based on both priority research of 139 SFOs and the extensive experience of fund professionals and financial services advisers who have worked with SFOs and private equity groups, this article is a compelling report on the role SFOs currently play—and will increasingly play—in the private equity industry. Topics covered include how SFOs choose where to make their investments and how a private equity group or investment banking firm can position itself to attract those investments. <b>TOPICS:</b>Private equity, wealth management, manager selection, portfolio construction

The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 12% over two years after buyouts of publicly listed firms—on average, and relative to control firms—but expands 15% after buyouts of privately held firms. Postbuyout productivity gains at target firms are large on average and much larger yet for deals executed amid tight credit conditions. A postbuyout tightening of credit conditions or slowing of gross domestic product growth curtails employment growth and intrafirm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms. We relate these findings to theories of private equity that highlight agency problems at portfolio firms and within the private equity industry itself. This paper was accepted by David Sraer, finance. Funding: This work was supported by Harvard Business School’s Division of Research, the Ewing Marion Kauffman Foundation, the Smith Richardson Foundation [Grant no. 2014-0136], and the Private Capital Research Institute. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2021.03890 .

While variations in public securities markets across nations have attracted increasing scrutiny, private financings have received little attention. But in developing nations, the bulk of financings are private ones. This paper analyzes 210 private equity transactions in developing countries. We find that unlike in the U.S., where convertible preferred securities are ubiquitous, in developing nations a much broader array of securities are employed and private equity investors often have fewer contractual protections. The choice of security appears to be driven by the legal and economic circumstances of the nation and the private equity group. Investments in common law nations are structured similar to those in the U.S., being less likely to employ common stock or straight debt, and more likely to use preferred stock with a variety of covenants. By way of contrast, in nations where the rule of law is less established, private equity groups are likely to use common stock and own the majority of the firm's equity if the investment encounters difficulties. Private equity groups based in the U.S. and U.K. rely more on preferred securities but also adapt transactions to local conditions. These contractual differences appear to have real consequences: larger transactions with higher valuations are seen in common law countries. These findings suggest that the structure of a country's legal system affects private contracts and cannot easily be undone by (bi-lateral) private solutions.

While variations in public securities markets across nations have attracted increasing scrutiny, private financings have received little attention. But in developing nations, the bulk of financings are private ones. This paper analyzes 210 private equity transactions in developing countries. We find that unlike in the U.S., where convertible preferred securities are ubiquitous, in developing nations a much broader array of securities are employed and private equity investors often have fewer contractual protections. The choice of security appears to be driven by the legal and economic circumstances of the nation and the private equity group. Investments in common law nations are structured similar to those in the U.S., being less likely to employ common stock or straight debt, and more likely to use preferred stock with a variety of covenants. By way of contrast, in nations where the rule of law is less established, private equity groups are likely to use common stock and own the majority of the firm's equity if the investment encounters difficulties. Private equity groups based in the U.S. and U.K. rely more on preferred securities but also adapt transactions to local conditions. These contractual differences appear to have real consequences: larger transactions with higher valuations are seen in common law countries. These findings suggest that the structure of a country's legal system affects private contracts and cannot easily be undone by (bi-lateral) private solutions.

The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 13% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 13% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms.