Private Equity Buyers Research Articles

Financial resource pooling in club deals

Using a novel hand-collected dataset on leveraged buyouts, this study tests non-mutually exclusive hypotheses for club formation: collusion; financial resource pooling, either due to the riskiness of the target firm or to the fund’s investment limits; and experience. Results of the empirical analysis support the resource pooling motivation: club deals allow their members to buy larger targets and to reduce their equity commitment compared to solo deals. As the amount of equity they should commit to a deal increases, private equity buyers’ preference for club deals becomes stronger. Evidence also demonstrates that club deals do not harm competition, in that they are associated with a higher level of competition occurring in the private phase of deal negotiations. Targets’ stock price reactions around the acquisition announcements and takeover premiums are similar in solo deals and club deals. Finally, club deals are more likely created when private equity funds are less experienced.

Maintaining Balance: A Comprehensive Look of The Struggle Between Government Protection and Government Overreach in Regard to Mergers and Their Remedies

In September of 2020, the Department of Justice made a change to the Merger Remedies Manual, which discusses the correct remedies for mergers that violate the standards in the Heart-Scott-Rodino Act and how to best enforce them. A deeper look at this manual prompts a deeper analysis on current antitrust merger standards and how they balance government power and personal liberties. The Merger Remedies manual and its corresponding document with the Federal Trade Commission, as well as the merger standards in regard to the rise of Private Equity Buyers and Big Tech, promote concern over the balance between constitutional rights and promoting fairness in the marketplace. This article is among the first to analyze how current merger remedies stand in being effective in regard to the technology sector, while also analyzing the constitutionality of those merger regulations.The article contributes to the literature in three primary ways. First, the article deeply analyzes the two manuals for merger remedies from the above mentioned agencies and determines which better balances governmental powers with personal liberties and where both agencies could improve. Second, the article outlines the current concerns with large technology companies and their current rights in regard to merger standards while also acknowledging their monopolizing tendencies, presenting ways in which such issues could more easily and constitutionally be regulated through antitrust merger laws. Third, the article analyzes the current stance from the merger regulating agencies towards private equity firms and how their changing stances and opinions support a less government-regulative stance towards private equity firm involvement.

Optimal Auction Processes for Sellers in Large Multi-Billion Dollar M&A Deals with Private Equity Buyers

Optimal Auction Processes for Sellers in Large Multi-Billion Dollar M&A Deals with Private Equity Buyers

Earnings Myopia and Private Equity Takeovers

We examine whether earnings myopia among publicly traded companies motivates private equity firms to acquire them. Using a sample of private equity takeovers, we show that multiple measures of myopia increase the likelihood of takeover by private equity buyers. In contrast, private takeovers motivated for strategic reasons do not have a similar association with myopia measures, nor do takeovers by public firms. We further show that post-takeover, firms exhibit significantly less earnings myopia, including increased investment in R&D. Our results suggest that the cost of earnings myopia can be sufficiently large to warrant a takeover by private equity and contributes to the shrinking number of publicly traded firms.

Fluid Handling Industry Update: M&A Activity

The 2018 fluid handling industry deal activity started at a near record pace with 26 transactions in Q1 but slowed significantly in Q2 with only ten announced transactions, which is the second lowest level of deal activity in the last four years. So far (through August), Q3 deal volume appears to be on pace or slightly ahead of Q3 2017. This pattern is consistent with reports of general M&A activity year to date but seems inconsistent with the high level of interest that both strategic and private equity buyers continue to show in pursuing quality acquisitions in the fluid handling space.

The Corporate M&A Brand—Winning the War for Acquisitions

For most technology and services companies, acquisitions are an important part of their growth strategy. Wall Street continues to ratchet up growth expectations for successful companies, and M&A is one of the most effective ways to show growth in revenue and earnings in a short period of time. M&A deals can be incredibly impactful in today’s environment where innovation and time-to-market timelines are compressed. The companies that continue to view their acquisition programs passively are at a distinct disadvantage to their competitors and the often-nimbler private equity buyers. The war for acquisitions is on! We are challenging the traditional corporate development methodology and looking for more creative methods of finding growth through M&A. A natural place to begin is with what we call the M&A brand.

Two firms get new private owners

Two chemical firms are being sold to new private equity buyers. Equistone Partners Europe has acquired a majority stake in United Initiators, a maker of organic peroxides and sulfates, from Vision Capital and Speyside Equity for an undisclosed sum. Speyside acquired United Initiators, which has annual sales of $260 million, from Evonik Industries in 2008. Separately, American Securities has agreed to buy Chromaflo Technologies from Arsenal Capital Partners and Nordic Capital. Chromaflo makes colorants and pigment dispersions for coatings and composites.

Strategic Buyers vs. Private Equity Buyers in an Investment Process

This paper compares the position of strategic buyers and private equity buyers in a typical investment process, from fundraising/sourcing of equity capital, through deal sourcing, due diligence, valuation and deal financing, deal negotiation and transaction execution, to value creation post-closing and exit/long-term plans. The paper evaluates advantages and disadvantages of the two different types of buyers within each of the phases of an investment process, and suggests that the financial discipline, flexibility, focus, and incentives structure of private equity firms often provide them with an edge over strategic buyers. Rather than being a rigorous academic study, the paper is intended to help M&A practitioners, whether on the strategic buyer or private equity side, with understanding their “opponent”.

PETROCHEMICALS TPC Group tries to bolster case for price of sale to private equity

The management of C4 chemical supplier TPC Group is mounting a defense of its agreement to sell itself to the private equity (PE) firms SK Capital and First Reserve for $850 million. Critics say the $40.00-per-share offer lowballs the company’s true value and potential. Leading the charge against the deal has been Sandell Asset Management, which owns a 7% stake in TPC. In a white paper, Sandell says TPC could be worth as much as $71.00 per share. The firm calls the $40.00 offer “a sweetheart deal for the PE buyers and management, allowing them to steal the company on the cheap from shareholders without a full and proper auction.” In its proxy statement, issued last week to detail deal information to shareholders, TPC describes the months before the agreement. After SK and First Reserve first approached TPC in December 2011, nine other parties expressed interest in acquiring TPC. Six ...

One size does not fit all: Selling firms to private equity versus strategic acquirers

This paper investigates the selling process of firms acquired by private equity versus strategic buyers. In a single regression setup we show that selling firms choose between formal auctions, controlled sales and private negotiations to fit their firm and deal characteristics including profitability, R&D, deal initiation and type of the eventual acquirer (private equity or strategic buyer). At the same time, a regression model determining the buyer type shows that private equity buyers pursue targets that have more tangible assets, lower market-to-book ratios and lower research and development expenses relative to targets bought by strategic buyers. To reflect possible interdependencies between these two choices and their impact on takeover premium, as a last step, we estimate a simultaneous model that includes the selling mechanism choice, buyer type and premium equations. Our results show that the primary decision within the whole selling process is the target firm's decision concerning whether to sell the firm in an auction, controlled sale or negotiation which then affects the buyer type. These two decisions seem to be optimal as then they do not impact premium.

Amid a Bleak Credit Environment, Flexible Techniques Aid PE Buyers

This article explores how private equity firms, facing an era of diminished credit and the ascendant influence of strategic buyers, are departing from the highly leveraged, all-cash buyout model that prevailed during the 2004–2007 boom period in order to complete deals. Making use of flexible forms of deal consideration, financial acquirers appear to be increasingly incorporating earnouts and seller financing into the considerations they offer targets to boost the “headline value” of their bids and reduce the amount of the purchase price required to be financed by third parties. In addition, private equity buyers are, with mounting frequency, employing a broad range of flexible investment strategies, which are also designed to lessen the need for up-front third-party acquisition financing. These strategies include requesting that sellers “roll over” significant stakes in target companies, the purchase of minority equity positions in target companies, and making all-equity investments.

CLOUDS LOOM OVER DEAL FRENZY

THIS SUMMER has seen some of the largest mergers and acquisitions in the chemical industry's history. But the subprime mortgage crisis that has made cash scarce in debt markets may also influence chemical deals, observers say. Peter Young, president of the New York City-based investment bank Young & Partners, says the situation may give strategic chemical buyers an edge over financial players. Leveraged buyout (LBO) or private equity buyers borrow a lot more money, And they depend a lot more on the debt markets, he says. And Young says whether financial buyers will complete deals depends on how firmly they have secured financing. The ones that are probably at risk are the ones where they signed the deal but they don't have firm financing lined up, he says. Tracey Stover, U.S. Chemicals leader at the professional services firm PricewaterhouseCoopers, says the debt crisis may merely influence how deals are financed. We have ...