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Empirical Essays On Value Creation And Performance Effects Of Private Equity Backed Company Buyouts
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Book Synopsis Empirical Essays on Value Creation and Performance Effects of Private Equity Backed Company Buyouts by : Alexander Knauer
Download or read book Empirical Essays on Value Creation and Performance Effects of Private Equity Backed Company Buyouts written by Alexander Knauer and published by . This book was released on 2013 with total page 410 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Value Creation of Private Equity by : Kevin Elsäßer
Download or read book Value Creation of Private Equity written by Kevin Elsäßer and published by GRIN Verlag. This book was released on 2018-01-11 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2016 in the subject Business economics - Investment and Finance, grade: 1,0, European Business School - International University Schloß Reichartshausen Oestrich-Winkel, language: English, abstract: Private equity companies are seen as high risk investment funds, trying to gain high returns on their investments in a period of around three to seven years. Even if the private equity industry has played an important role in growth or as an external financing source of established companies as well as newly-established companies, private equity investors are not seen as sustainable value creators. In various occasions, private equity funds are even declared as a greedy instrument to earn fast money. In order to analyse whether private equity companies create value in a sustainable way, this study compares the performance of private equity backed initial public offerings (IPOs) with non-private equity backed IPOs. Moreover, it analyses whether private equity backed IPOs outperform the market. This study evaluates the performance of private equity backed IPOs by performing two separate empirical analyses: one focusing on the UK private equity market - the largest private equity market in Europe - and one focusing on the entire European market. The research conducts a quantitative analysis of secondary data, more specifically by using stock prices of private equity backed firms, non-private equity backed firms and applicable benchmark market indices. Such data was obtained from multiple sources, such as the London Stock Exchange, Bloomberg and Yahoo Finance. In general, the study compares the performance of private equity backed IPOs with non-sponsor IPOs with regard to their price development and abnormal returns. The analysis is based on multiple independent analyses of each IPO. In order to provide a general understanding of this issue and to be able to interpret the research results, the paper discusses the theoretical framework and the findings of other authors. In recent decades, several authors have demonstrated their research on private equity based IPOs as well as the value creation of private equity firms. Based upon these, hypotheses are formulated, which are then subsequently tested using multiple research methods. In general, the study indicates that the majority of private equity firms do not create sustainable value. More than 50% of the analyzed private equity backed companies were not able to outperform the market benchmark indices. On average, private equity backed firms were able to significantly outperform the market in the UK. However, they were unable to perform equally well on a European level.
Book Synopsis Value Creation in Leveraged Buyouts by : Nicolaus Loos
Download or read book Value Creation in Leveraged Buyouts written by Nicolaus Loos and published by Springer Science & Business Media. This book was released on 2007-11-05 with total page 490 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on a dataset of over 3,000 leveraged buyout transactions, including performance data, Nicolaus Loos analyses how financial investors create economic value through their investments. He shows that various exogenous factors with respect to timing, industry, public market as well as deal specific factors can statistically be related to a buyout deal's performance. He also provides evidence of a "GP effect" in leveraged buyouts, i.e. that certain characteristics of a Private Equity firm and its investment professionals as well as a firm's buyout strategy approach and certain buyout target characteristics are important success factors.
Book Synopsis Value Creation of Buyout Funds by : Samuel Hiller
Download or read book Value Creation of Buyout Funds written by Samuel Hiller and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This Bachelor thesis aims to contribute to the existing research on value creation in leveraged buy-outs by empirically analysing a current sample of portfolio companies in buyout funds. After a brief market review and an introduction to the workings of private equity as an asset class, a detailed overview of existing levers regarding value generation is provided, followed by the theoretical foundation and mathematical deduction of a buyout investment's core performance drivers. This framework provides the cornerstone of the subsequent empirical analysis which intends to answer four questions: (a) What drives the returns of leveraged buyouts? (b) How are these returns influenced by various factors, e.g. the transaction size? (c) How do buyout firms create value in their portfolio companies? and (d) do private equity backed companies perform better than comparable public industry peers? The key finding of this study confirms the assumed replacement of the leverage effect by a company's operating performance as the most important driver of buyout performance. In order to differentiate themselves from other buyout firms, LBO investors need to actively engage in portfolio company management to achieve significant improvements in operating performance and thus superior returns in a mature market. Furthermore, results highlight a positive influence of buyout investors on margin developments when compared to public industry peers. Private equity backed companies achieve substantially higher margin growth rates during the post-acquisition phase, despite their on average already superior performance prior to the buyout.
Book Synopsis Value creation by private equity-backed IPOs. Underpricing and long-term performance in Germany by : Matthias Hetzenecker
Download or read book Value creation by private equity-backed IPOs. Underpricing and long-term performance in Germany written by Matthias Hetzenecker and published by GRIN Verlag. This book was released on 2020-11-19 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2019 in the subject Business economics - Review of Business Studies, grade: 1,0, University of applied Sciences Regensburg, language: English, abstract: This paper examines value creation by private equity-backed IPOs. It gives detailed insights on a mostly US-based research topic analyzing 134 German IPOs from 2002 to 2018, of which 49 were identified as PE-backed, and contributes empirical evidence on the discussion of private equity value creation. The empirical results provide detailed information on whether private equity financing can be a suitable financing source for companies by comparing and analyzing the performance differences between IPOs of companies with and without private equity sponsors. Furthermore, the paper provides empirical evidence on the IPO phenomena of underpricing and negative long-term performance for Germany, differentiating itself from former studies in terms of a broader time horizon and an extensive return calculation methodology. Since the locust swarms debate initiated by SPD politician Franz Müntefering, private equity investors have had to struggle with an extremely bad reputation in Germany. Unpopular measures such as company divestures or mass redundancies to achieve set turnover and return targets reinforce the negative image of financial investors. Accordingly, investor and business magnate Warren Buffet criticized that businesses under private equity control become a piece of merchandise. Nonetheless, the private equity industry continues to boom, reaching new records in terms of global business volume and transactions. Under these circumstances and new evolving discussions, it is essential to take a close look at the business model of private equity firms and to analyze potential short- and long-term value creation in their portfolio companies.
Book Synopsis Private Equity and Management Buy-outs by : Mike Wright
Download or read book Private Equity and Management Buy-outs written by Mike Wright and published by Edward Elgar Pub. This book was released on 2008 with total page 513 pages. Available in PDF, EPUB and Kindle. Book excerpt: Private Equity and Management Buy-outs provides a balanced view of the often polarized private equity debate. This careful and objective analysis of the presence of private equity in buy-out firms reviews the effects of this ownership transfer in terms of firm performance and survival, thus placing private equity in a broader context of implications for value creation.The analysis provides an overview of international trends in private equity and develops a conceptual framework for understanding the heterogeneity of private equity deals. Systematic evidence from large-scale studies of private equity and buy-outs are used to shed light on short- and longer-term economic and social effects. For the first time the broader scope of the key issues now facing private equity and buy-outs are brought together in the contributions herein. The book includes highlights such as:* empirical evidence on a special organizational form of private equity;* examination of backed buy-outs (perspectives from strategy, finance, HRM and management accounting);* discussion on the level of PE involvement;* challenging further debate on economic and social key issues regarding policy implications and a future research agenda.Academics and researchers - postgraduate and above - in business schools and schools of economics will find this book enlightening. It will also hold great interest for practitioners in the fields of mergers and acquisitions, general, strategic and financial management, and corporate entrepreneurship and corporate governance.
Book Synopsis Family Firms and Private Equity by : Oliver Ahlers
Download or read book Family Firms and Private Equity written by Oliver Ahlers and published by Springer. This book was released on 2014-07-25 with total page 253 pages. Available in PDF, EPUB and Kindle. Book excerpt: Family firms are of particular importance for many economies. We know little about family firm buyouts and how they are different from non-family firm buyouts. Oliver Ahlers investigates this under-researched topic. After a comprehensive literature review on family firm buyouts, the focus of his book is on the key steps of the investment process such as family firm valuation and negotiations between PE investors and family sellers. Additionally, it is investigated how “soft factors” such as trust, reputation or commitment could play an important role when PE and family firms interact. Throughout the book, differences between family and non-family firm buyouts are highlighted.
Book Synopsis How Do Private Equity Funds Create Value? by : Andreas Schneider
Download or read book How Do Private Equity Funds Create Value? written by Andreas Schneider and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The objective of this master's thesis is to contribute to the understanding of value creation in buyouts. The first part reviews two theoretical concepts that contribute to the explanation of various aspects in relation to value creation and presents a framework that identifies and links the different levers of value creation. The second part covers an empirical analysis that (i) examines the relative contribution of the most important of these levers (key value drivers) to the performance of leveraged buyouts (ii) and analyzes the impact of various factors such as transaction size, geographical region, entry year, exit type, holding period and entry mode on these levers and the resulting performance of buyouts. The data sample comprises a total of 42 realized European leveraged buyout investments with an entry enterprise value of at least &u8364150mn and the entry not dating back further than 1993. This study highlights, among other things, the predominance of the leverage effect as the key value driver in European leveraged buyouts and that private equity firms increasingly start to focus on the operating performance of their portfolio companies as a lever to drive value creation. Also, this work provides evidence that in today's competitive acquisition environment, multiple riding is far less common than in earlier years.
Book Synopsis Buy and Build Strategies in Management Buyouts by : Moritz Breuninger
Download or read book Buy and Build Strategies in Management Buyouts written by Moritz Breuninger and published by GRIN Verlag. This book was released on 2013-11-29 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2013 in the subject Business economics - Business Management, Corporate Governance, grade: 7,5, Erasmus University Rotterdam (Strategic Management), language: English, abstract: Recent changes in the market for private equity have led investors to shift their attention away from market beta and towards generating alpha through the exploration of growth opportunities. PE firms increasingly use active ownership to implement these new growth plans. Buy and build strategies have emerged as a feasible and lucrative strategy of active ownership. The add-on acquisitions required when pursuing this strategy and the need to create value through synergistic effects necessitate post-acquisition integration efforts. Despite its relevance, researchers in the field of strategic management and finance have paid little attention to buy and build strategies. Moreover, they have yet to bridge the findings by scholars and practitioners on post-acquisition integration and active ownership. This paper seeks to fill this gap by answering the research question of how PE firms contribute to the integration process and how they handle task and affective conflicts and exercise management control with regard to the cooperation between the PE firm and the management of the portfolio company. Previous work has linked active ownership to capabilities and found that prior business experience is a strong predictor of active ownership, meaning a high level of contribution by the investment firm. This paper complements this work by analyzing active ownership of private equity firms in the context of post-acquisition integration in buy and build strategies and finds a direct link between capabilities and active ownership through four explanatory theory-building case studies. Birkinshaw et al. (2000)’s study on post-acquisition integration is used as a guiding concept in this paper. They distinguish between task integration, which is defined as the identification and realization of operational synergies, and human integration, which is defined as the creation of positive attitudes towards the integration and shared identity among employees. This paper creates a practical Framework for Integration Management on this notion and extends it by additional academic literature and relevant studies of consulting firms. A number of working propositions are derived from the literature and linked to the framework. Each proposition is then tested through within-case analysis and across-case comparison. Based on the evidence, three propositions are revised or extended whereas six propositions are supported. [...]
Book Synopsis Post-Investment Value Addition to Buyouts by : Degenhard Meier
Download or read book Post-Investment Value Addition to Buyouts written by Degenhard Meier and published by Deutscher Universitätsverlag. This book was released on 2006-02-24 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: Degenhard Meier explores the dimensions of post-investment value addition characterizing the interaction between private equity firms and their portfolio companies and derives plausible hypotheses which he tests in an innovative way, i.e. he takes the current discussion on alternative methods to structural equation modeling as a basis and develops this discussion further by shedding light on partial least squares - a variance-based approach to structural equation modeling.
Book Synopsis Essays on Value Creation and Risk Assessment in Private Equity-sponsored Buyouts by : Nico Engel
Download or read book Essays on Value Creation and Risk Assessment in Private Equity-sponsored Buyouts written by Nico Engel and published by . This book was released on 2012 with total page 368 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Private Equity by : Ji-Woong Chung
Download or read book Essays in Private Equity written by Ji-Woong Chung and published by . This book was released on 2010 with total page 163 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: This first essay studies the motivations and the consequences of leveraged buyouts of privately held companies. Over the last two decades, the number (enterprise value) of leveraged buyout transactions involving privately held targets totals 10,013 ($855 billion), accounting for 46% (21%) of the worldwide leveraged buyout market. Yet the vast majority of academic studies focus on the buyouts of publicly held targets. This chapter investigates the effects of leveraged buyouts on privately held targets. I find that, unlike the corporate restructuring process of public firms after the buyouts, private targets sponsored by private equity firms grow substantially after the buyouts. The overall evidence suggests that private equity firms, through leveraged buyouts, facilitate private targets' growth by alleviating targets' investment constraints. In the second essay which is co-authored with Berk Sensoy, Lea Stern, and Mike Weisbach, we study model and estimate the total incentives facing private equity general partners. Incentives from the explicit fee structure ("two and twenty") of private equity funds understate the actual incentives facing private equity general partners because they ignore the rewards stemming from the effect of current performance on the ability to raise larger funds in the future. We evaluate the importance of these implicit incentives in the context of a learning model in which investors use current performance to update their assessments of a general partner's ability, and, in turn, decide how much capital to allocate to the partners' next fund. Our estimates suggest that implicit incentives from expected future fundraising are about as large as explicit incentives from carried interest in the current fund. This implies that the performance-sensitive component of revenue is about twice as large as suggested by previous estimates based only on explicit fees. Consistent with the model, we find that these implicit incentives are stronger when abilities are more scalable and weaker when current performance is less informative about ability. Overall, the results suggest that implicit incentives from future fundraising have a substantial impact on general partners' welfare and are likely to be an important factor in the success of private equity firms. In the last chapter, I study performance persistence in the private equity industry. Contrary to what has been known in the literature, I find that performance persistence in private equity is short-living. Current fund performance is positively and significantly associated with the first follow-on fund performance, but not with the second or third follow-on funds. Even the statistically significant association between two consecutive funds' performance is not economically large. The returns of the best performing quartile portfolio drops by about half, and those of the worst performing portfolio improve substantially from one fund to the next fund. There is no difference in the performance of the second (and after) follow-on funds of current top and bottom performing quartile portfolios. Performance converges in the long run. The commonality of relevant market conditions between two consecutive funds largely explains performance persistence. Also, excessive fund growth conditional on past performance erodes performance and reduces persistence.
Book Synopsis Private Equity at Work by : Eileen Appelbaum
Download or read book Private Equity at Work written by Eileen Appelbaum and published by Russell Sage Foundation. This book was released on 2014-03-31 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt: Private equity firms have long been at the center of public debates on the impact of the financial sector on Main Street companies. Are these firms financial innovators that save failing businesses or financial predators that bankrupt otherwise healthy companies and destroy jobs? The first comprehensive examination of this topic, Private Equity at Work provides a detailed yet accessible guide to this controversial business model. Economist Eileen Appelbaum and Professor Rosemary Batt carefully evaluate the evidence—including original case studies and interviews, legal documents, bankruptcy proceedings, media coverage, and existing academic scholarship—to demonstrate the effects of private equity on American businesses and workers. They document that while private equity firms have had positive effects on the operations and growth of small and mid-sized companies and in turning around failing companies, the interventions of private equity more often than not lead to significant negative consequences for many businesses and workers. Prior research on private equity has focused almost exclusively on the financial performance of private equity funds and the returns to their investors. Private Equity at Work provides a new roadmap to the largely hidden internal operations of these firms, showing how their business strategies disproportionately benefit the partners in private equity firms at the expense of other stakeholders and taxpayers. In the 1980s, leveraged buyouts by private equity firms saw high returns and were widely considered the solution to corporate wastefulness and mismanagement. And since 2000, nearly 11,500 companies—representing almost 8 million employees—have been purchased by private equity firms. As their role in the economy has increased, they have come under fire from labor unions and community advocates who argue that the proliferation of leveraged buyouts destroys jobs, causes wages to stagnate, saddles otherwise healthy companies with debt, and leads to subsidies from taxpayers. Appelbaum and Batt show that private equity firms’ financial strategies are designed to extract maximum value from the companies they buy and sell, often to the detriment of those companies and their employees and suppliers. Their risky decisions include buying companies and extracting dividends by loading them with high levels of debt and selling assets. These actions often lead to financial distress and a disproportionate focus on cost-cutting, outsourcing, and wage and benefit losses for workers, especially if they are unionized. Because the law views private equity firms as investors rather than employers, private equity owners are not held accountable for their actions in ways that public corporations are. And their actions are not transparent because private equity owned companies are not regulated by the Securities and Exchange Commission. Thus, any debts or costs of bankruptcy incurred fall on businesses owned by private equity and their workers, not the private equity firms that govern them. For employees this often means loss of jobs, health and pension benefits, and retirement income. Appelbaum and Batt conclude with a set of policy recommendations intended to curb the negative effects of private equity while preserving its constructive role in the economy. These include policies to improve transparency and accountability, as well as changes that would reduce the excessive use of financial engineering strategies by firms. A groundbreaking analysis of a hotly contested business model, Private Equity at Work provides an unprecedented analysis of the little-understood inner workings of private equity and of the effects of leveraged buyouts on American companies and workers. This important new work will be a valuable resource for scholars, policymakers, and the informed public alike.
Book Synopsis Buyout and Distressed Private Equity by : Christian Graf
Download or read book Buyout and Distressed Private Equity written by Christian Graf and published by . This book was released on 2011 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Value Creation in Private Equity-Sponsored Leveraged Buyouts by : Lei Gao
Download or read book Value Creation in Private Equity-Sponsored Leveraged Buyouts written by Lei Gao and published by . This book was released on 2019 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper estimates an empirical model of two-sided many-to-many matching game in which private equity investors acquire publicly traded companies in leveraged buyouts, and examines the value creation of these transactions. This method calculates match-specific values by exploiting the characteristics of both private equity investors and companies. It is therefore able to identify and quantitatively estimate the value created through investor influence and that created through debt. In public-go-private transactions completed between 1986 and 2007, the direct influence of private equity investors generates a significant value which is equal to 7.8 percent of the pre-buyout market capitalization of the going private companies. However, the value generated through debt is insignificant.
Book Synopsis Essays on Leveraged Buyouts and Distressed Asset Pricing by : Brian Ayash
Download or read book Essays on Leveraged Buyouts and Distressed Asset Pricing written by Brian Ayash and published by . This book was released on 2014 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters that concern leveraged buyouts and the risk- return relationship of distressed stocks. The first chapter uses hand collected cash flow statements to present the origin, ownership and use of cash in leveraged buyouts of large publicly traded U.S. firms by private equity funds between 1980 and 2006. I find suggestive evidence that target firms exhibit inefficient investment in the form of empire building pre-acquisition. Once controlled by private equity funds, firms exhibit a significant decline in investment, sales and asset growth, and employment growth as debt is used to motivate managers and forces the release of excess free cash flows. I do not find evidence of value creation, as the profitability of the underlying assets does not increase under private equity control. There is evidence of an increase in cash flows from financial management expertise. This form of excess cash generation contributes to the funding of dividends but the majority of the funding is from asset sales and reduced investment prior to exit. Cash flow statements are also used to evaluate returns. I find that the IRR generated by underlying assets is insufficient to cover the cost of financing debt, adversely affecting the IRR to equity holders. The second chapter, co-authored with Harm Schu ̈tt, tests whether leveraged buyouts improve targets operating performance? We hand collect complete, comprehensive financial statements for a sample of 138 large public U.S. firms that were acquired by private equity funds in leveraged buyouts between 1980 and 2006, and we examine the operating performance of these companies. Because of our comparatively large dataset with comprehensive financial statements we can better scrutinize operating performance and the technical accounting issues associated with leveraged buyouts. We find that the acquired firms do not exhibit post-buyout improvements compared to industry peers. In addition to operations, we evaluate outcomes for the acquired firms. In an expanded sample of 531 large public to private leveraged buyouts we find that 109 (21%) subsequently declare bankruptcy or were restructured outside the bankruptcy court while held by private equity funds. Our results suggest that while private equity managers might be savvy investors, they are not better operators of the target companies. The third chapter explores the breakdown in the risk-return relationship of financially distressed stocks. I model firms in financial distress using an endogenous default model and demonstrate that distressed firms have nonsymmetric return distributions and are systematically mispriced under the CAPM. I propose the use of a CRRA utility model to correct for the mispricing of positive skewness in the return distribution of distressed stocks. I create portfolios using four distress measures and compare the risk-return relationship under both models. I find that the anomalously low return delivered by portfolios of the most distressed stocks is driven by the inclusion of OTC traded stocks.
Book Synopsis Private Equity and Its Impact by : Spencer J. Fritz
Download or read book Private Equity and Its Impact written by Spencer J. Fritz and published by . This book was released on 2009 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book looks at the increase in leveraged buyouts (LBO) of U.S. companies by private equity funds prior to the slowdown in mid-2007 which has raised questions about the potential impact of these deals. Some praise LBOs for creating new governance structures for companies and providing longer term investment opportunities for investors. Others criticise LBOs for causing job losses and burdening companies with too much debt. This book addresses the effect of recent private equity LBOs on acquired companies and employment, the impact of LBOs jointly undertaken by two or more private equity funds on competition, the Securities and Exchange Commission's (SEC) oversight of private equity funds and their advisers, and regulatory oversight of commercial and investment banks that have financed recent LBOs. The U.S. Government Accountability Office (GAO) reviewed academic research, analysed recent LBO data, conducted case studies, reviewed regulators' policy documents and examinations, and interviewed regulatory and industry officials, and academics. The GAO recommends that the federal financial regulators give increased attention to ensuring that their oversight of leveraged lending at their regulated institutions takes into consideration systemic risk implications raised by changes in the broader financial markets.
