Private Equity Research Articles

A success dressed as a failure? Evidence from post‐IPO withdrawal outcomes in Europe

AbstractWhat happens to companies that file for an initial public offering (IPO), but withdraw and do not list? How long does the post‐IPO outcome take? These questions are investigated by analysing market, firm and offer characteristics of 334 withdrawn IPOs in Europe between 2001 and 2015. The majority of withdrawn IPOs is engaged in M&A, only few file for a second time IPO. These post‐IPO withdrawal outcomes happen shortly after the IPO filing. Private equity and venture capital‐backed firms are more frequently engaging in M&A or trading. The evidence suggests that the IPO may be used as a marketing mechanism, being one of several alternatives of exit.

Corporate governance mishap in a startup: a case of GoMechanic

Learning outcomes The case study is designed to help students understand how the “growth at all costs” attitude can lead to compromised corporate governance in a start-up leading to disastrous implications for all the stakeholders. This case study aims to make students understand the components of the fraud triangle, the impact of financial fraud on various stakeholders, the role of venture capitalist (VC) investors and the importance of good corporate governance in start-ups. The case study presents an excellent opportunity for students to discuss the consequences of ignoring good governance in the pursuit of growth in a start-up. After analyzing the case study, the students shall be able to explain the concept of the fraud triangle and to be able to identify the motivation, opportunity and rationalization of financial irregularities in a start-up; analyze the impact of financial irregularities on various stakeholders; comprehend the business model of VCs and evaluate its influence on VC-funded start-ups; and appraise the importance of good corporate governance in start-ups. Case overview/synopsis The case study revolves around the confession of financial irregularities made by one of the cofounders of GoMechanic, a start-up headquartered in Gurugram, India. On January 18, 2023, Amit Bhasin confessed to financial irregularities in the company’s financial statements, leading to laying off 70% of the workforce of the company. GoMechanic had earlier raised close to US$62m [1] from maverick global investors including Sequoia Capital, Tiger Global, Orios Venture Partners and Chiratae Ventures, and was negotiating to raise Series D financing from the Japanese multinational SoftBank with aspirations to be a unicorn (start-up with a valuation of over $1bn). The confession led to a debate about the consequences of the “growth at all cost” culture being followed by start-ups as well as VCs. GoMechanic was not an isolated instance of a lack of governance in the start-ups. The confession had consequences not only for the GoMechanic but for the entire start-up ecosystem of India, which was the third largest in the world. Bhasin stated that the founders take full responsibility for the situation, and they were working on a plan which was most viable under the circumstances. However, it was not going to be easy to regain the confidence of the investors. Complexity academic level The case study is best suited for senior undergraduate- and graduate-level business school students and in executive education programs in courses such as corporate governance and ethics, private equity and entrepreneurial finance. Supplementary material Teaching notes are available for educators only. Subject code CSS 1: Accounting and finance

Nursing home finances associated with real estate investment trust and private equity investments.

In 2021, real estate investment trusts (REITs) and private equity (PE) held investments in 1915 (16%) and 1569 (13%) US nursing homes (NHs), respectively. We created a database of REIT and PE investments in NHs, merged it with Medicare Cost Report data (2011-2019), and used a difference-in-differences approach within an event-study framework to compare NH spending and financial performance before and after REIT or PE investment to NHs that did not receive REIT or PE investment. REIT investments were associated with higher total wages (3%), total nursing wages (3%; both logged, per resident day [PRD]), and current ratio (81%). PE investments were associated with lower net patient service revenue (7%), total expenses (7%), and total wages (8%; all logged, PRD). The impact of REIT and PE investments in NHs may vary in different market conditions, as may occur in the current environment of low, falling NH profits, potentially higher minimum staffing requirements, and rising interest rates. Therefore, it is important for stakeholders to understand the impact of these large, growing investments on the financial performance of NHs.

Determining Drivers of Private Equity Return with Computational Approaches

AbstractPrivate equity (PE) represents the acquisition of stakes in non-listed companies, often long-term, with the objective of improving the performance and value of the company to obtain significant benefits at time of disinvestment. PE has gained particular importance in the global financial system for delivering superior risk-adjusted returns. Knowing the PE return drivers has been of great interest among researchers and academics, and some studies have developed statistical models to determine PE return drivers. Still, the explanatory capacity of these models has certain limitations related to their precision levels and exclusive focus on groups of countries located in Europe and the EE.UU. Therefore, in the current literature, new models of analysis of the PE return drivers are demanded to provide a better fit in worldwide scenarios. This study contributes to the accuracy of the models that identify the PE return drivers using computational methods and a sample of 1606 PE funds with a geographical focus on the world’s five regions. The results have provided a unique set of PE return drivers with a precision level above 86%. The conclusions obtained present important theoretical and practical implications, expanding knowledge about PE and financial forecasting from a global perspective.

Private equity investment in health care delivery, Australia, 2008-2022.

To examine the scale of private equity investment in Australian health care delivery assets (clinics, hospitals, imaging facilities, other doctor-led health care services). Extraction of information about private equity acquisitions of hospitals, clinics, imaging centres and invitro fertilisation facilities in Australia, 2008-2022, from a commercial database (PitchBook), supplemented by information from publicly available online media sources. Number and value of private equity acquisitions of health care assets, 2008-2022; numbers of clinic parent company and clinic acquisitions, 2017-2022. A total of 75 private equity acquisitions of health care delivery assets in Australia during 2008-2022 were identified; the annual number rose from three acquisitions in 2008 to eighteen in 2022. During 2008-2010, five of seven acquisitions were of invitro fertilisation providers; during 2020-2022, 22 of 39 acquisitions were of clinics or clinic groups, including eleven of eighteen in 2022. The total value of the 39 acquisitions for which purchase price could be ascertained (52%) was $24.1 billion. During 2017-2022, the clinic specialty with the greatest number of private equity acquisitions was general practice (256 of 446 clinics purchased within acquisitions). Seven companies owning ophthalmology clinics (24 clinics) were acquired by private equity. Four private equity acquisitions during 2017-2022 included 60 oncology clinics, all related to a single clinic group. The number of private equity acquisitions of Australian health care delivery assets increased during 2008-2022. Doctors should be aware of the motivations and dynamics of private equity companies, as they are increasingly likely to interact with these firms and assets owned by these firms.

164 Characterization of Market Movements and Private Equity in Neurosurgery Practices and Hospitals

INTRODUCTION: Surgical services could be faced with shifts in corporate management, restructuring, and incentives as trends such as private equity (PE) investment in healthcare continue to evolve. The number of surgical services acquired by PE firms has increased significantly over the last 20 years. Due to financial vulnerability and movement towards digital health, PE activity within healthcare has further grownsince the COVID pandemic. METHODS: PitchBook and Mergermarket were used to query deals involving neurosurgical practice within the United States at any time. Exclusion criteria consisted of non-neurosurgery practices and debt restructuring deals without a change in ownership. The company name, deal type, financing year, and state were extracted for each deal. Deal type was stratified by the following categories: angel investment, mergers and acquisitions, private equity and venture capital (PE/VC), and corporate buyout. Internal debt refinancing such as leveraged recapitalization was excluded from the analysis. RESULTS: A total of 125 companies were discovered in the initial search. After further review, 63 companies were included in final analysis. The deals occurred between 1994 to 2022 and involved companies in 27 different states. Of the 63 companies, 36 (57.1%) involved mergers or acquisitions, 16 (25.4%) involved private equity or venture capital firms, 7 (11.1%) involved corporate buyouts, and 4 (6.3%) involved angel investments. CONCLUSIONS: PE is increasingly involved with neurosurgery practices, with an associated decline in mergers and acquisitions. Future qualitative investigation is required to help characterize physician attitudes of PE-run practices in comparison to non-PE practices.

Private equity in radiology – Why aren't we more concerned?

There has been recent scrutiny of private equity involvement in the healthcare market by federal and state governmental agencies who are concerned about the corporatization and financialization of healthcare in the United States. Data is emerging that patient costs increase, quality of healthcare decreases, physician autonomy decreases, and physician burnout and moral injury increases when corporate interests like private equity enter the medical market. Like other medical specialties, the field of radiology has been affected by corporatization and radiologists should understand how private equity interests may affect individual radiologists and the radiology workforce on a larger scale.

Private Equity Investments and its Importance on Startup Businesses

The significance of private equity investments in the startup ecosystem is investigated in this research paper, which looks at buyouts, growth equity, and venture capital. It draws attention to how private equity investors can help startups grow more quickly by offering cash, industry knowledge, management support, and networking opportunities. Potential hazards and difficulties, like conflicts of interest and governance problems, are also covered in the report. Additionally, it draws attention to how the private equity financing market is changing and makes suggestions for maximising its advantages for long-term startup success.

Understanding Private Equity Funds: A Guide to Private Equity Research in Accounting

ABSTRACT Private equity (PE) funds are increasingly important to the economy and now serve as the primary vehicle for raising new capital. However, a limited understanding of the unique PE fund setting among accounting academics inhibits accounting research in this area. In this paper, we first describe the PE fund setting and explain how fundamental differences between PE and previously studied settings make it difficult to infer PE fund behavior from research performed using other settings. We then discuss how PE funds provide researchers with the ability to explore fundamental questions related to agency costs, governance, compensation, disclosure, and fair value accounting. Finally, we provide guidance on PE data sources available for use in future research. Because of the volume of economic activity currently funneled through PE and the unique aspects of the PE setting, it is important for researchers to explore when, why, and how accounting matters for PE funds. Data Availability: Data used in this study are available from the public sources identified in the text. JEL Classifications: G1; G14; G30; M4; M41.

The future of private practice neurosurgery and the pitfalls of private equity.

The future of private practice neurosurgery and the pitfalls of private equity.

Unpacking Private Equity Performance

Unpacking Private Equity Performance

Private Equity in Distress and the Incentives of Collateralised Loan Obligations

Abstract This article explores the problem that both modern private equity (PE) firms, and collateralised loan obligation (CLO) lenders to PE portfolio companies, have incentives to avoid a formal restructuring of PE portfolio companies in financial distress. The author is concerned that this may lead to negative social costs for suppliers, employees, customers and even government agencies. She explores how and why the problem arises, and the ways in which corporate and corporate insolvency law might be able to respond to it. Some suggestions are made, but it is accepted that any solution involves a sensitive balance that needs to be approached with considerable care.

Duration-Adjusted Return on Capital: A Novel Approach to Measuring Private Equity Performance

Duration-Adjusted Return on Capital: A Novel Approach to Measuring Private Equity Performance

Effects of partial demand uncertainty reduction on private equity financing in small and medium-sized enterprises: A supply chain perspective.

The effect of demand uncertainty reduction (DUR) on supply chain management has received tremendous attention. From a financial perspective, studying the impact of DUR is equally significant. This study explores the relationship between DUR and private equity (PE) financing in retail enterprises within a supply chain, which comprises a dominant supplier and a subordinate retailer. This article establishes decision models for a retailer backed by PE under three market demand conditions: range, mean, and range with mean. The study further investigates the impact of partial demand uncertainty reduction (PDUR) on the retailer and PE through comparative analysis of these scenarios. To address incomplete market demand information during the decision-making process, the study employs the minimax regret criterion to construct and solve the model. An intriguing finding of this study is that contrary to intuition, PDUR not only fails to promote PE but also reduces the retailer's willingness to finance and decreases the asset size for both the retailer and PE. In addition, the better the growth potential for the retail enterprise, the more severe the negative impact brought about by PDUR. Moreover, the impact of PDUR on supplier and supply chain performance is two-fold. PDUR based on range information has a negative impact on the expected profit of the supplier and the supply chain, while PDUR based on mean information has a positive impact on their expected profit.

What Determines Global Flows of Entrepreneurial Finance?

Economists examine foreign direct investment, which mostly constitutes flows to established firms (sometimes characterized as “multinational corporations”) that might or might not engage in truly innovative activity in the FDI target country. Conversely, finance scholars have studied the pipeline of entrepreneurial finance from limited partnerships (LPs) to venture capitalists (VCs) or private equity general partners (GPs) to portfolio firms. Few studies examine relationships between general and limited partners, and those that do often examine only the United States, or a limited number of countries in a given region. This paper uses a novel dataset (LP Source) to examine secular trends in cross-national flows from the LP to the GP (in the form of various investment funds) to the portfolio firm. We find evidence for “home bias” and demonstrate that cross-border flows are affected by GDP per capita, export orientation, and country-level measures of the entrepreneurial environment.

Private Equity Investment in Health Care Soars-But at What Cost?

Study finds more hospital-acquired adverse events after acquisitions.

Leveraging national security: private equity and bankruptcy in the United States defense industry

Abstract Defense contractors play an essential role in US security operations. Among other responsibilities, contractors manufacture arms, manage logistics, analyze intelligence, and carry out cybersecurity operations. Historically, defense contractors were either publicly traded corporations or privately owned companies. The past two decades, however, have seen a major shift in the ownership structure of the US defense industry. Private equity firms—once niche actors in the US national security marketplace—have carried out over 1,500 deals involving defense contractors since 2000. This study employs a mixed-methods research design to assess the effects of private equity investment on the financial stability of the US defense industry. Using data on over 8,000 defense contractors, the inquiry finds that contractors with private equity backing experience bankruptcy at higher rates than contractors with no prior private equity investment. In addition, the study evaluates private equity activity in the military satellite services market—a field of growing importance in the strategically important domain of outer space. The inquiry’s findings have notable international security implications. Given the US’ role as a lynchpin in numerous alliances around the world, higher rates of bankruptcy among defense contractors have the potential to affect the security of the United States and its allies.

Private Equity Exits in the CEE:

Purpose of the article: The purpose of this article is to assess private equity exit strategies of CEE portfolio companies with regards to desired exit routes, including a cross-border deal aspect and a pre-exit holding period.Methodology/methods: This paper employs secondary data from the Mergermarket database containing information on more than 20 thousand private equity M&A deals and IPOs. General scientific methods such as analysis, comparison or generalization were used.Scientific aim: Only limited amount of research was carried out on the private equity exits in the region of central and eastern Europe. This study aims at shedding new light on understanding of private equity exit route decisions and timing in this particular geographic area.Findings: Exiting a CEE portfolio company, private equity investors tend to prefer exiting via trade sales over secondary buyouts or IPOs. They also tend to prefer foreign acquirers over domestic ones. A typical pre-exit holding period averages around 5 years.Conclusions: Our results show that while exiting a CEE portfolio company, private equity investors tend to divest by selling the company to a strategic investor (trade sales) rather than a financial investor (secondary buyouts) or exiting via an IPO. While exiting via trade sales and secondary buyouts, private equity investors tend to prefer foreign acquirers rather than domestic ones with a strong preference of acquirers from outside of the respective region. Typical holding period of a CEE private equity portfolio company remains on average in line with academic theory. Our paper contributes to the developing literature of private equity by using an extended and up to date dataset and introducing the research on the cross-border aspect of PE exit strategies.

Study Reveals Alarming Impact of Private Equity Acquisitions on Hospital Patient Care

Study Reveals Alarming Impact of Private Equity Acquisitions on Hospital Patient Care

Private Equity Investments in Support of Professional Athletes: Developing and Testing a Cross-Country Framework of Sporting and Venture Creation Performances in Countries With a Strong Long-Term Orientation

Overseas financial direct investments (ODIs) have been investigated with explanations of how investors generate a return on investment (ROI) and enable entries to new markets via sports club investments. However, investments in athletes have garnered less attention. This study explores private equity (PE) funds that could support professional athletes’ sporting performance and their second careers as entrepreneurs, actions that require a long-term approach. First, this study builds a sports entrepreneurship framework. Second, this study analyses secondary data on exceptionally strong sporting performance (Olympic Games medals), venture creation performance (the number of unicorns), and long-term orientation. As its theoretical contribution, this paper suggests that the tested framework could help future studies detail theories concerning sports startup ecosystems and agency problems. A managerial implication of the article is that sports club investments could be combined with PE fund investments to athletes in contexts dominated by funding types other than PE.