Private Equity Firms Research Articles

Private Equity and Family Firms - Barbarians on the Yard: A Vignette Study

External succession through the private equity route has recently become a more common option for family firms. Drawing on the socioemotional wealth (SEW) perspective, we study what factors influence the selling decision of family firm owners and managers and look at the moderating role of family firm portfolios. Based on a unique vignette study conducted with 200 vignette responses by family firm owners and managers, we unveil that levels of SEW and financial performance influence the propensity to sell. Surprisingly, the existence of family firm portfolios only significantly moderates the relationship between innovation performance and the propensity to sell. Our research provides important implications for research on family firm external succession and the SEW literature, contributing insights on the factors influencing decisions on the private equity succession route

Physician Management Companies, Private Equity Investment, and Commercial Healthcare Prices (WITHDRAWN)

Financial institutions have fueled the corporatization of medicine by investing in and acquiring health care organizations. In particular, private equity (PE) firms have invested heavily in physician management companies (PMCs). A PMC is a for-profit entity that manages the back-end administrative functions of medical practices, such as insurance contracting and billing. Many PMCs also employ practitioners and contract with hospitals to provide professional staffing and management services. This type of PMC is especially common in anesthesia: the eight largest anesthesia-focused PMCs employ nearly 22% of all anesthesia practitioners in the U.S. In this paper, we create a novel dataset that combines commercial claims from the Health Care Cost Institute with data on PMC facility contracts for anesthesia staffing services to study 1) how prices paid to anesthesia practitioners change after a facility contracts with a PMC and 2) whether there are differences between PMCs with and without PE investment. Using difference-in-differences methods, we find that allowed amounts increase by 16.5% post-PMC contract, with significant differences by PE status: PMCs without PE investment increase allowed amounts by 12.9%, while PE-backed PMCs increase allowed amounts by 26.0%. We find similar patterns for unit prices (allowed amounts standardized by procedure type and length), suggesting that price increases are the result of higher prices paid per service and not service length or intensity. In additional analyses, we explore why PMCs may command higher prices, including the threat of moving practitioners out of network.

Worker Earnings Mobility and the Conception of Value in Private Equity Leveraged Buyouts

Over four leveraged buyout (LBO) waves since 1980, private equity firms restructured thousands of large U.S. businesses with tens of millions of employees. At the same time, earnings for most U.S. workers stagnated despite rising corporate productivity. While private equity proponents argue that LBOs increase corporate competitiveness and create shared value, LBO critics argue that workers often bear the cost of high LBO debt. I argue that two main conceptions of value in private equity leveraged buyouts - operational and financial - have different implications for worker earnings mobility. I use administrative data on hundreds of millions of U.S. workers to show that LBOs on average increase the earnings of more-educated workers and lower the earnings of less-educated workers. The large negative LBO effects appear in the riskier LBOs enacted at the peak of the LBO waves, when the cost of high-yield debt is low and creditors offer debt with lower restrictions on organizational behavior. Findings from worker-level difference-in-difference models support this argument. I show that the cost of high-yield debt predicts higher leveraged deals and I match LBO-acquired companies to non-acquired companies based on timing, capitalization, size, industry, stock market, earnings, and level of financial distress. This study develops the organizational theory of economic inequality by explaining how the different value conceptions of corporate restructuring have different impacts on worker opportunity. Management theorists should continue to study LBOs and other organizational restructuring processes that reassign corporate control to impact diverse stakeholder groups.

Defense Contractors, Private Equity Firms, and US National Security

AbstractPrivate equity firms have become important financial actors in the US defense industry in recent years—acquiring over 500 defense contractors since the early 2000s. This inquiry describes how increased capital flows into private equity funds, rising national security budgets, Pentagon policy, and rapid industry consolidation have spurred private equity investment in the businesses of American defense. Subsequently, the study demonstrates two ways private equity acquisitions of corporations in the defense industry affect US national security. First, because private equity firms often fund acquisitions through leveraged buyouts, the debt obligations of private equity–owned defense contractors are characterized by a relatively high risk of credit default. Second, the debt burden private equity firms place on defense contractors often reduces these companies’ free cash flow. As an increasing number of defense contractors are acquired by private equity firms, aggregate corporate reinvestment in the defense industry may well decline, thus diminishing the ability of contractors to perform their national security obligations.entreprises du secteur de la défense sociétés de capital-investissement et sécurité nationale aux états-unis

Contractual considerations in the private equity era.

Private equity (PE) has grown rapidly in medicine. The reintroduction of PE in ophthalmology has necessitated a greater understanding of the potential contractual relationships with PE firms from both a practice owner and an employee physician perspective. There are contractual obligations that need to be met as PE agreements are designed to ensure clear investment patterns and abide by legal mandates. A practice owner entering into a PE contract needs to consider how the practice is being valued, what their obligations are to the PE entity after the sale has been completed to attain full compensation and understand their new role at the practice. On the other hand, employee ophthalmologists must carefully evaluate the compensation package being offered in terms of the type of equity, vesting of shares, obligations to the PE firm under the agreement such as a noncompete clause, and what occurs under a subsequent sale of the practice. Overall, contractual considerations in the private equity era need to be carefully evaluated in order to ensure the agreement is in the best interest for the clinician, practice, and their patients.

Syndication Strategies of Venture Capital and Private Equity Firms in India—An Empirical Investigation

This article explores the factors affecting the syndication strategies of Indian Venture Capital and Private Equity (VCPE) firms. Analysis of 5,399 VCPE investment deals from 1998 to 2016 shows that firms’ preferences to syndicate are significantly affected by the characteristics of the VCPE firms, the investee firms, and the agreement itself. More specifically, experience and ownership (foreign vs. domestic) of the VCPE firm, age and industry of the investee firm, and size and stage of the investment deal influence the syndication preferences, reflecting the finance and resource motives for syndication. Our empirical analysis shows that younger VCPE firms and those with domestic investors may have a resource motive for syndication, preferring to manage the high market and technological risks associated with VCPE investing through syndication. In addition, to tackle information asymmetry, Indian VCPE firms are likely to syndicate when they invest in younger companies and those with high innovation and technology quotients. Similarly, VCPE firms reveal evidence of the financial motive for syndication. They strategize to diversify risks when the investment size is large or the stage of the investment deal is early.

Association Between Private Equity Acquisition of Urology Practices and Physician Medicare Payments

To assess whether private equity (PE) acquisitions of urology practices were associated with changes in Medicare payments and patient volume. We identified PE acquisitions of urology practices through financial databases, industry news outlets, practice websites, and Google search. Using the Centers for Medicare and Medicaid Service's Medicare Provider Utilization and Payment Data: Physician and Other Supplier Public Use File (2012-2019), we conducted descriptive statistics and trends analysis to examine whether PE acquisition was associated with changes in Medicare payments and patient volume in comparison to non-PE affiliated urologists within the same states. We identified PE acquisitions of 10 independent urology practices across 6 states during the study period. In the preacquisition period, urologists later joining private-equity groups received greater mean inflation-adjusted Medicare payments ($246,977 vs $160,038; P <.001) and had greater patient volume (839.7 vs 674.2 patients; P = .001) than urologists who did not. In the postacquisition period, PE affiliated urologists had an 11.0% (95% CI: -0.2% to 22.3%) increase in inflation-adjusted Medicare payments (P = .054) and a 12.5% (95% CI: 6.5%-18.6%) increase in patient volume (P <.001). Non-PE affiliated urologists exhibited a 6% decline in Medicare payments (P <.001) and a 2.7% increase in patient volume (P <.001). PE affiliated urologists exhibited increases in Medicare payments even prior to acquisition, in contrast to declines for geographically similar, non-PE urologists. These findings may highlight characteristics of practices targeted by PE firms and local practice trends that may further diverge following acquisition.

AUTHOR REPLY

We thank the author for highlighting the significance of access for early detection and prompt treatment of urologic disease. Healthcare access for Medicaid-insured patients will be important to monitor as private equity acquisitions continue to reshape the urology landscape. In the year since our initial study, at least 1 additional private equity backed platform company has formed and numerous practices have been acquired in roll-up acquisitions. 1 Nie J Demkowicz PC Hsiang W et al. Urology practice acquisitions by private equity firms from 2011–2021. Urol Pract. 2021; https://doi.org/10.1097/UPJ. 0000000000000269 Crossref Google Scholar ,2 S&P Capital IQ. Available at: https://www.capitaliq.com. Accessed March 15, 2021. Google Scholar In addition, the first known “exit” by a private equity firm has occurred with the sale of northeast urology platform to a for-profit, multispecialty physician group. 3 Summit Health. Summit Health Adds Westmed Medical Group and New Jersey Urology, expanding access to its unique connected care model [press release]. 2022. Business Wire. Google Scholar Changes in ownership should underscore to readers that private equity acquisitions are not intended as longitudinal partnerships with physicians or communities but are instead, by design, short-term investment opportunities.

Paying the Price for Privatization: Prison Food in the Era of Mass Incarceration

This essay discusses the development of the prison food industrial complex (PFIC) within the US carceral state. The PFIC is made up of politically connected food services companies and commissary companies (correctional food vendors) contracted by local and state governments to provision correctional facilities; private equity firms also increasingly have a stake in prison food companies. The PFIC developed in the 1980s, when local and state governments increasingly looked to privatizing prison services as solutions to budget crises and the management of unprecedentedly large numbers of people cycling through jails and prisons amid “tough on crime” policies of the late twentieth century. As this essay argues, the emergence of the PFIC has exacted costs on a host of groups, including smaller food producers, unionized public-sector workers, and incarcerated people and their loved ones, while also constituting an overlooked dimension of the ways the US food system disproportionately harms communities of color. In drawing attention to the consequences of the PFIC, this essay seeks to provide new insight into neoliberal reforms of the US carceral state during the mass incarceration era.

EDITORIAL COMMENT

The landscape of urologic employment has changed dramatically over the past 10 years. Older models of employment, such as independent practice and academic practice have given way to new models of employment, such as hospital-based employment, multispecialty group practice, and private equity (PE) acquired practices. Nie et al demonstrated that private equity acquisitions have become a dominant form of urology practice consolidation.1 They estimate that 7.2% of private practice urologists were employed by private equity backed firms and 25% of urologists in New Jersy and Maryland are employed by private equity firms.

The Global Wealth Chains of Private‐Equity‐Run Physician Practices

ABSTRACTCurrently, numerous physician practices in industrial and emerging countries are being taken over by private equity firms and integrated into novel physician corporations. This involves private equity firms producing a global wealth chain (GWC) between their investors and the target asset, using offshore financial centres to facilitate tax‐avoiding reflux of capital. Moreover, they are opening up ambulatory health care as an asset for capital investment by overcoming previous market barriers to ambulatory health care via a legal construct. In this paper, we trace the spatial links of these finance‐side and sector‐specific corporate chains based on a capital flow analysis of private equity takeovers of Medical Care Centres (MCCs) in Bavaria, Germany. With our heuristics of a double‐layered GWC, which enables the extraction of value from the German health system, we contribute to the emerging GWC debate that aims to conceptualise the complex and often opaque spatialisations of financialisation processes.

Barbarians at the Store? Private Equity, Products, and Consumers

ABSTRACTWe investigate the effects of private equity firms on product markets using price and sales data for an extensive number of consumer products. Following a private equity deal, target firms increase retail sales of their products 50% more than matched control firms. Price increases—roughly 1% on existing products—do not drive this growth; the launch of new products and geographic expansion do. Competitors reduce their product offerings and marginally raise prices. Cross‐sectional results on target firms, private equity firms, the economic environment, and product categories suggest that private equity generates growth by easing financial constraints and providing managerial expertise.

Ownership Change and Care Quality: Lessons From Minnesota's Experience With Value-Based Purchasing.

Background and ObjectivesMinnesota’s implementation of a new nursing home value-based reimbursement (VBR) system in 2016 presented an opportunity to compare the response of nursing homes (NHs) to financial incentives to improve their quality and efficiency. The state substantially increased reimbursement for care-related costs and tied this rate increase to a composite quality score. Coinciding with rate increases of the new VBR system was an increase in ownership changes, with new owners being primarily for-profit entities from outside of Minnesota, including several private equity firms. Our objective was to examine NHs that underwent a change in ownership to determine their cost and quality response to the change.Research Design and MethodsOur sample consists of 342 Minnesota NHs that submitted Medicaid cost reports each year from 2013 to 2019. A time differential two-way fixed-effects difference-in-difference model is used to assess changes in quality metrics by comparing measures in years prior to and years following the sale for NHs that changed ownership versus NHs with consistent ownership. Nursing home characteristics, revenue, and spending patterns are examined to understand differences in performance.ResultsThose NHs with ownership change experienced a decline in quality scores with notable changes to expenditure patterns. They performed worse on Minnesota Department of Health inspection scores and had nonsignificant declines in measures of quality of life and clinical care. They had declining staff dental and medical benefits and occupancy rates, greater revenue growth from Medicare Part B, and larger increases in administrative management fees.Discussion and ImplicationsMinnesota like many other states has given wide latitude for nursing home ownership changes, without specific oversight for the quality of care and expenditure patterns of new owners. Recommendations include strict guidelines for the transparency of ownership structures, quality performance targets, rigorous financial auditing, and enhanced regulatory oversight.

Financial versus strategic bidders and underpricing as an acquisition motive

AbstractWe examine the difference between financial and strategic bidders in exploiting target underpricing. To isolate underpricing from other sources of acquisition gain, we estimate the target revaluation of bids that fail to be completed. We document larger revaluations for targets of financial bidders, precisely private equity bidders than for those of strategic bidders when targets are most likely to be underpriced, that is, when they are small. This differential effect between financial and strategic bidders in target revaluation is robust after controlling for differential sorting into deal failure, future takeover activity and anticipated operational changes and therefore indicates that it is greater target underpricing before bid announcements that financial bidders reveal to the market than strategic bidders do. This suggests that financial bidders and private equity firms attempting to buy smaller firms are more likely associated with underpriced targets than strategic bidders.

Trends in Debt Valuations of Private Equity–Backed Dermatology Groups Before and During the COVID-19 Pandemic

Private equity (PE) firms have invested in and consolidated dermatology practices. Private equity firms typically operate by conducting leveraged buyouts, which occur when target companies are acquired with capital from PE firms and a combination of debt, which may include debt instruments held in business development corporations (BDCs). To investigate the valuations of dermatology PE-backed group (DPEG) debt instruments in BDCs' portfolios both before and during the COVID-19 pandemic. This cross-sectional study, conducted from August 1, 2016, to August 31, 2021, examined public financial statements filed by BDCs lending to DPEGs. The public filings of BDCs were searched from inception of the DPEG's debt instrument in a BDC's portfolio, and the amortized cost and fair value of each debt instrument were tabulated. The premium or discount at which each debt instrument was valued at a given time was calculated by dividing the difference between the fair value and the amortized cost by the amortized cost. Different testing methods were conducted for normal or nonnormal data to test differences in debt valuations across all DPEGs between 2 consecutive or nonconsecutive quarters. The search of the public filings found 10 BDCs containing data on 9 unique DPEGs. Overall, there were 15 trackable DPEG debt instruments because multiple BDCs can hold debt instruments for a given DPEG. Data were available from August 2016 through August 2021. During the study time frame, the amortized cost of the loans for an individual DPEG ranged from a low of $1.7 million to a high of $100 million. The valuation of debt instruments was stable for many DPEGs until some were discounted starting in May 2018, with a significant decrease from May 2019 to August 2019 (-1.4%; 95% CI, not applicable; P = .04), prior to the COVID-19 pandemic. Another significant decrease occurred during the pandemic from February to June 2020 (-9.0%; 95% CI, -13.6% to -4.4%; P = .002). US Dermatology Partners decreased to the lowest valuation (Golub BDC, -39.7%; TCG BDC Inc, -48.8%; TCG BDC II, -48.8%) of the DPEGs examined in November 2020 even after receiving a $10 million forgivable Small Business Administration Paycheck Protection Program loan in May 2020. After pharmaceutical companies announced effective COVID-19 vaccine candidates in November 2020, there was a modest and significant improvement in debt valuations (2.3%; 95% CI, 0.2%-0.4%; P = .03); however, they remained discounted. Only PhyNet Dermatology's debt instruments improved to a premium valuation by August 2021. Debt valuations of some DPEGs found in this cross-sectional study suggest a lower probability that their loans will be repaid in full. This could be a signal that some DPEGs are not performing well financially.

Access to Urological Care for Medicaid-Insured Patients at Urology Practices Acquired by Private Equity Firms

ObjectiveTo characterize appointment access for Medicaid-insured patients seeking care at urology practices affiliated with private equity firms in light of the recent national trends in practice consolidation. MethodsWe identified 214 urology offices affiliated with private equity firms that were geographically matched with 231 non-private equity affiliated urology offices. Using a standardized script, researchers posed as an adult patient with either Medicaid or commercial insurance in the clinical setting of new onset, painless hematuria. The primary outcome was whether the patient's insurance was accepted for an appointment. The secondary outcome was appointment wait time. ResultsWe conducted 815 appointment inquiry calls to 214 private equity (PE) and 231 non-PE-affiliated urology offices across 12 states. Appointment availability was higher for commercially-insured patients (99.0%; 95% CI: 98.1%-99.9%) vs Medicaid-insured patients (59.8%; 95% confidence interval [CI]: 55.0%-64.6%) (P < .0001). Medicaid acceptance was higher at non-PE affiliated (66.8%; CI 60.4%-73.2%) than PE-affiliated practices (52.1%; 95% CI 45.0%-59.2%) (P = .003). On multivariable logistic regression analysis, state Medicaid expansion status (odds ratio [OR] 2.20; CI 1.14-4.28; P = .020) was independently associated with Medicaid appointment availability, whereas PE-affiliation (OR 0.55; CI 0.37-0.83; P = .004) was independently associated with lower Medicaid access. Appointment wait times did not differ significantly for commercially-insured vs Medicaid patients (19.2 vs 20.1 days; p = .59), but PE-affiliated practices offered shorter mean wait times than non-PE offices (17.5 vs 21.4 days; P = .017). ConclusionAccess disparities for urologic evaluation in patients with Medicaid insurance at urology practices and were more pronounced at private equity acquired practices.

Practical Applications of When to Go and How to Go? Founder and Leader Transition in Private Equity Firms

In <ext-link><underline><bold><italic>When to Go and How to Go? Founder and Leader Transition in Private Equity Firms</italic></bold></underline></ext-link>, published in the Fall 2021 issue of <bold><italic>The Journal of Alternative Investments</italic></bold>, <bold>Josh Lerner</bold> of <bold>Harvard Business School</bold> and <bold>Diana Noble</bold>, founder of <bold>Kirkos Partners</bold>, examine leadership transitions at private equity (PE) firms. They find that the philosophy of the founder and the context in which the firm finds itself usually drive most leadership transitions, which typically are complex multiyear processes with substantial frictions. PE firms encounter challenges with leadership transitions partly because there has been little research about the process. As the PE industry matures, the pace of leadership transitions will accelerate and the need for accepted best practices for the process will be amplified.

Recent Trends in Private Equity Acquisition of Orthopaedic Practices in the United States.

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.

The Effect of Provided Education Services on Meeting Residents’ Satisfaction in the United Arab Emirates, the Case of Ajman Emirate

The UAE is an emerging mature education market in the Middle East and North Africa (MENA) region, ambitiously looking forward to being an attractive destination for education’s investors, education’s providers, and regional and international students. But this depends largely on the quality of the education services provided and the residents’ level of satisfaction. The purpose of this paper is to identify the level of Ajman’s resident satisfaction on education services and to assess what do the trends over time, tell about the education quality, and residents’ level of satisfaction? To this end, a sample of 992 was selected out of a total of 95,531 household who lived in Ajman and had prior experience in education provided services. Data were analyzed using the Statistical Package for the Social Sciences (SPSS) version 22 and AMOS version 22. Structural Equation Modeling (SEM) analysis showed an acceptable model fit used to measure residents’ satisfaction both for government and private sector. Findings for Ajman showed that all dimensions of accessibility, reliability, and safety, except for responsiveness dimension of education service in government sector, correlated positively with education service quality, which also had a strong, positive correlation with residents’ satisfaction. For private sector, all of accessibility, reliability, safety and responsiveness dimensions correlated positively with education service quality, which also had a strong positive correlation with residents’ satisfaction. Generally, about 93% of Ajman residents claimed that they were satisfied with education services, where satisfaction level on education services provided by the government sector reached 94% and about 92% in the private sector. Both government and private education had the same highest scoring dimensions, with safety dimension had the highest satisfaction of about 97% for government sector and 96% for private sector. Responsiveness dimension satisfaction was the least with 92% for government sector and quality dimension in private sector was the least with 87%. Findings of this study were expected to support the concerned decision makers for improving education services within the Emirate of Ajman. The UAE being among the top destinations for FDI in the region enhanced this trend, by recently introducing ownership laws to allow for 100% foreign investors ownership of companies outside free zones, together with 10-year residency visa options—a move designed to drive more foreign investment into the country and attract longer term residents. Consequently, more and more private equity firms in the region were growing their education portfolios in light of this climate, with the education sector ranking second in terms of private equity transactions among all sectors in the MENA region. Besides, the cost of living in the UAE continues to rise, and the degree to which this and the introduction of VAT will affect education sector growth is yet to be determined.

Marc Donovan: 'I can't say there won’t be further store closures'

If the rumours are true, Boots is headed for a major change. Since mid-January 2022, reports have suggested two private equity firms, and the billionaire owners of supermarket chain Asda, are drawing up bids to buy the multiple from its current parent company Walgreens Boots Alliance (WBA). Such a move towards private equity has a […]