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date: 18 February 2020

(p. 719) Index

(p. 719) Index

Accenture, 62
Acharya, Viral
equity ownership and PTP transactions, 92
private equity
active ownership improves managerial behavior, 682
owners more active in operational engineering, 682
transactions
in United Kingdom, and managerial replacement, 685
returns to, 350
venture capital firms
governance over target firms, 161
and value creation, 189n. 12, 356
Achleitner, Ann-Kristen
Germany
hedge fund targets, positive announcement returns for, 499, 517n. 12
tax benefits influence decisions in, 659
institutional investors, new, summary of, 500–502 table 18.1
private equity
buyouts
announcement period, returns to, 658
benefits of, 272
investors as blockholders, positive returns to, 511
summary of research on, around the world, 647–652 table 23.1
venture capital firms
governance over target firms, 189n. 12
Acxiom Corp., buyout of, 25
Admati, Anat R.
private equity club deal and agency conflicts, 244
syndicates, reasons for, 223
venture capitalists
contracting behavior, 187, 188n. 4
financing with hybrid securities, 162, 189n. 17
syndicates
creating advantage in information, 454
lead firms less reliant on syndicate members, 455
value-added services to investees, 157
adverse selection, 158
as an agency problem, 446, 447, 613
mitigated by financing decisions, 163
affiliate. See venture capital
agency problems, 446, 613–614
and LBO involvement, 100, 272, 275–276, 294
dividend policies and, 627
entrepreneurial IPO firms and, 446, 447
fund management and, 39
governing behavior and, 156–196, 159 fig. 6.1, 274, 457, 496, 516, 641
international business and, 459, 461, 659
“principal-agent”, 454
“principal-to-principal”, 454
syndicates and, 456
Aguilera, Ruth
agency problems in different national settings, 461
corporate governance
national institutions, and differences in, 456, 457
heterogeneity of, 460
Alberta Revenue, 42
Alecta, 49
Alliance Data Systems, 27
and Blackstone contract, 28, 29
American Deposit Receipts (ADRs), 134
Amess, Kevin
private equity buyouts
effects of, 279–280 table 10.1
employees, effects on, 288, 294, 341, 657
productivity, effects on, 290, 302, 304
summary of research on, around the world, 647–652 table 23.1
LBOs, in United Kingdom, effects of, 114
MBOs compared to MBIs, 336
AMF Pension, 49
cumulative average abnormal returns, 105 table 4.5
Amihud, Y.
cumulative average abnormal returns in event studies of PTP transactions, 105 table 4.5
premiums paid above market price to take a firm PTP, 106 table 4.6
summary of impact strand, 111 table 4.7
Anand, Bharat
market concentration in venture capital market, 220
measure for calculating market share of PE firm, 225
venture capital firms and “closed shop” thinking, 79
(p. 720) Andrade, Gregor
LBOs
bankruptcy, risk of, 292
financial distress of, 116
M & A activity, 122
Andres, Christian
buyouts, 11
announcement returns, positive, 658
cumulative average abnormal returns, 105 table 4.5, 107
“deal fever”, 109
employee wealth transfer hypothesis, 108
summary of impact strand, 112 table 4.7
undervaluation hypothesis, 109
Ang
investment banker, choice of, 528
issue costs and firm transparency, 528
SEO discounts, 527
angel investors, 450–453
ability to work with management, 459
agency risk and, 453
as “informal” investors, 446, 448, 453, 460
financial decisions similar to venture capitalists' decisions, 460
governance roles of, 450–453
announcement returns, 469–494
international results, 658–659
Apax Partners, 34, 62, 82nn. 2, 3
APEN
downturn experience, 569
issuing preference shards, 560
Armour, John
buyouts
innovation after, 309
legislative enactments and, 309
club deals, 249
corporate governance and legal institutions, 457
private equity
balance between, and conventional strategic players, 263
funds, fixed life of, 245
public-to-private buyout activity in “deep freeze”, 264
Arthurs, Jonathan
government financial guarantees affecting multiple agency problems, 459
IPOs
in common and civil law countries, 458
private equity-backed
summary of research, 451–452 table 16.1
venture capital firms
and “conflicting voices”, 449
value adding, 450
Asia
club deals, 674
investment activity in, 673 table 24.2
LBOs
financial returns to, 677–678 table 24.5
governance and operational change, 681–687
governance in, 684 table 24.8
key findings on governance and operational engineering, 683 table 24.7
managerial change in, 685 table 24.9
operational change in, 686 table 24.10
realized returns and exit characteristics, 680 table 24.6
leveraged buyouts and control-oriented investments in, 667–693
mergers and acquisitions activity and private equity, 2004–2008, 674 table 24.3
private equity in, 671 fig. 24.1
financial returns to, 676
historical comparative studies, 669–670
select LBO transactions, 2006–2008, 675 table 24.2
Asia Private Equity Review (APER), 414n. 4
Asquith, Paul
bondholder wealth in PTP transactions, 94 table 4.2, 95, 107
premiums paid above market price to take a firm PTP, 106 table 4.6
summary of impact strand, 111 table 4.7
asset allocation, 605–608
problems of, 77–78
asymmetric information, 157, 158–160, 275, 388, 447–450
about valuation, 96
and agency problems, 188n. 7, 446, 592, 613–614, 614–615
and investment decisions, 454
and PIPE
choice, 529
discounts, 527, 528
and venture capital contracts, 448
explaining bidders' gains in acquisitions, 460
Atlas Venture, 62, 63
ATP, 47
Australia
corporate spin-offs and divestitures in, 688
financing small companies in, 668
infrastructure investments, 41
LBOs in, 660
pension funds investment in, 41 table 2.2
QSuper, investments of, 41
UniSuper, investments of, 41
See also Asia
Axcel
buyout of Royal Scandinavia, 333–339, 340, 341n. 2
Bailey, Elizabeth M.
bid rigging, 255
competition, softened by club deal structures, 259
consortiums, large, likelihood of, 26
fair auctions, 259
(p. 721) “go shop” provisions, 250
“monopsony power”, 258
Baker, George P., 113, 118, 119, 128
Baker, Malcolm, 159, 161
KKK history, 19
measuring performance in MBO, 116
stocks sensitive to investor sentiment, 528
summary of process strand, 117 table 4.8
use of case studies to measure performance after PTP, 113
venture capital firms
governance over target firms, 161, 162
Baker & McKenzie, 64
BankRate, 34
bankruptcy, 291–292
international laws concerning, 645, 656
LBOs and, 93, 274, 276, 278, 567
following, 232
immature, 154
syndicated, 249
private equity market and, 272
receivership, known as, in United Kingdom, 226
RLBOs and, 144
start-ups and, 76
Banks, Jeffrey
highly confident letter, 21
lender out condition, 23
market out clause, 21
venture capital
syndicates bring benefits of trust and knowledge, 454
risk in private equity transactions, 21
Barbara Lynn Stores, Inc., 96
Barry, Christopher
IPOs
in Asia, a goal of PE firms, 681
prior research, focused on United States, 456
private equity-backed
summary of research, 451–452 table 16.1
retained ownership not compared to post-IPO performance, 462
stock price affected by importance of investors, 447–448
venture capitalist-investment relationship, 80, 463n. 2
Basha, Andreas
venture capital firms in Europe
contracting behavior of, 187, 188n. 4
financing practices of, 164
governing behavior of, 187
security choice of, 189n. 13
BCE, Inc., 27, 29
private equity contract
reputation of acquirer and, 33
industry concentration, 220, 222
Berglöf, Erik
cross-border markets, nonprivate equity players investing in 261
venture capital firms
contracting behavior of, 187, 188n. 4
financing with hybrid securities, 162, 189n. 17
Bernstein, Shai
private equity
buyouts, effects of, 281 table 10.1
effects of, 289
owners more active in operational engineering, 682
Betzer, Andre
buyouts, 11
premiums paid in European transactions, 658
summary of research on, around the world, 647–652 table 23.1
tax savings no influence on decisions in Continental Europe, 659
bid rigging. See venture capital, syndicates, club deals
bidders' gain
duration of ownership and reputation of PE, effects on, 488
from PE-backed and non-PE-backed target firms, 482, 485, 486, 492
unlisted targets and, 469, 471
Bienz, Carsten
venture capital firms
contracting behavior of, 189n. 11
control rights of, 161, 189n. 11
exit
by IPO or by trade sale, 616
pecking order, 613
rights, 161
liquidation rights, 161
security choice, 189n. 13
Bikker, J. A.
financial markets, competition in traditional banking, 239
industry concentration, 220, 222
Billett, M. T.
cumulative average abnormal returns, 105 table 4.5
likelihood of being an LBO target, 100
PTP transactions
bondholder wealth in, 94 table 4.2, 95
intent strand, 102–103 table 4.4
Bilo, Stéphanie
private equity firms
increasing, 611, 612
risk and return characteristics of, 6
Black, Bernard S.
hedge funds compared to private equity funds, 503
IPOs
stock price affected by importance of investors, 448
portfolio company, tax benefits and, 517n. 4
private equity investments, 309
asymmetric information and, 614–615
exits seen as corporate governance mechanism, 612, 613
venture capital
governance
behaviors, 187
and national institutional environments, 461
syndicates
opportunity for reputation building, 455
Blackstone Group, 58, 203, 388, 590, 611, 618
and ADS contract, 28
and club deals in Asia, 674
as listed private equity fund manager, 594
Hilton Hotel Group acquisition, 253
IPO, 2
recent results, 244, 496
Bonini, Stefano
private equity
hybrid securities, 162
financing practices
in Italy, 166–167
governance over target firms, 189n. 12
venture capital contracting behavior, 187
Boone, Audra L.
auction theory, 255
bidding auctions
synergetic value of combined consortium members, 256
competition hypothesis, 256, 260
monopsony likelihood in the United States, 261
Borsa Italiana S. p. A., 168
Bottazzi, Laura
institutional investors and venture capital funds, 40
private equity market, growth of, 219, 314
Boucly, Quentin
private equity
bankruptcy, risk of, 291
buyouts, effects of, 281 table 10.1
increase in employment growth, 277
Brander, James A.
syndicates
club deals, 244
complementary resource theory, 205
enhance returns, 199
decrease competition with interfirm networks, 223
summary of studies of, 200–202 table 7.1
Brau, James C.
industry market-to-book variable, 392
investment banker, choice of, 528
private equity investments
exit strategy for, 612, 616
SEO discounts, 527
survey response rate, 168
Brav, Alon
agency problems, 446
IPOs
post-issue performance, 446
private equity-backed
summary of research, 451–452 table 16.1
venture capital-backed 132
retained ownership signaling value, 448
institutional investors, new, summary of, 500–502 table 18.1
hedge fund as blockholder
average excess returns, 499
private equity acquiring private firms provides cash, 470
British Columbia Investment Management Corporation, 42
Brown, Christopher
exit announcement news, leaks in, 625
private equity
cumulative average abnormal returns, 105 table 4.5
exit timing, 397
listed, 10
PTP firms, wealth losses for suppliers of, 108
Brown, Stephen J.
hedge funds, 387, 397
standard event study methodology, 507
Bruining, Hans
private equity
buyouts
effects of, 281 table 10.1
employees, effects on, 289
R & D, effects on, 305
in Asia, 669–670 table 24.1, 671, 673
in Australia, growth of LBOs, 672
syndicates
analysis of, 211
capital constraints theory, 204
complementary resource theory, 205
syndication study, 201 table 7.1
Bruton, Garry
angel investors
and ties to entrepreneurs, 453
compared to venture capitalists, 453
involvement of, mitigating moral hazard costs, 453
stronger governance in some countries, 459
asymmetric information and, 447
entrepreneurial research concentrated in North America, 461
IPOs
national institutions
corporate governance and differences in, 457, 461
differences even, in areas with similar cultural traits, 457
private equity-backed
summary of research, 451–452 table 16.1
summary of process strand, 118 table 4.8
venture capital firms
and “normative institutions”, 79
retained ownership and legal institutions in different countries, 459
Bureau van Dijk
AIDA database, 168, 307, 474, 618
business model
in China, innovative, 703, 704
(p. 723) private equity, 383, 504, 588, 663
scalability of, 62
venture capital
alternative model, 79
“fair weather model”, 76
new model, 75, 79, 81
abandonment of, 76, 77
buyin management buyout (BIMBO), 90 table 4.1, 91
dummy, 226
Bygrave William D.
private equity
club deals and value adding, 244
exit by IPO yields higher return, 616
syndication
of firms, 454
study, 200 table 7.1
C-suite, 131, 154n.1
Cable, Daniel
angel investors
financing decisions similar to venture capital decisions, 460
having longer time horizon, 453
ties to entrepreneurs causing obligations, 453
asymmetric information mitigated in venture capital contracts, 448
Cain, Matthew
amount of reverse termination fee, 30
private equity
bid failures, 31
contracts, reverse termination fees for, 32, 33, 34
future of, 16
termination of $100 million private equity terminations, 29
California Public Employees' Retirement System (CalPers), 50, 348, 349
Canada
Canadian Stock Market, 523–524
direct investments by pension funds in, 42–45, 43–44 table 2.3
equity issue cost models, 540 table 19.6, 542 table 19.7
PIPEs, 525–526
PPs
choice model, 534
distribution of, 536 table 19.4, 538–539 table 19.5
issue costs of, 535, 543n. 1
regulation of, 524–525, 525–526
private and public equity, issue costs of, 526–529
private offerings instead of public offerings, 521
public venture market, 523–526
sample characteristics and industrial distribution, 532 table 19.1
SEOs
annual distribution of, 536 table 19.4
choice model, 534
distribution of, 536 table 19.4, 538–539 table 19.5
issue costs of, 535, 543n. 1
special warrants, 525–526
variable definitions, 533 table 19.2
venture capital contracts in, 189n. 19
Cancorp Financials, 529
Candover Investments
downturn experience of, 568
exiting from a fund, 560
liquidation of, 569
realization strategy, 559
Cao, Jerry X.
LBOs
in Asia, 676
institutional environment and, 653
more likely in environment that is safe for investors, 674
premiums paid in U.K., 658
private equity, 8
summary of research on, around the world, 647–652 table 23.1
reverse LBOs, 115
summary of RLBO literature, 133 table 5.1
undervaluation hypothesis, 109
capital asset pricing model (CAPM), 104, 147, 387, 584, 612
Carpentier, Cécile
Canadian market
private placements, 10, 522
proceeds of SEOs, 537
SMEs, 522, 523, 524
Casamatta, Catherine
venture capital firms
contracting behavior, 187, 188n. 4
financing
with convertible securities, 164
with hybrid securities, 163
moral hazard problem, double-sided, 159
cash deals, 478, 482, 487
and liquidity problems, 492
as exits, 491
and information asymmetry, 488
reduce bidder's return, 486
cash management, 76–77, 549, 577
CDP Pension, 42
Centre for Management Buyout Research, (CMBOR), 224, 225
Cerberus Capital Management
and United Rentals, 26
Chahine, Salim
angel investors
and ties to entrepreneurs, 453
asymmetric information affecting price, 447
IPOs
private equity-backed, summary of research, 451–452 table 16.1
venture capitalists
bank-affiliated, and poor IPO performance in France, 450
Chang, Eric C.
mutual fund managers, compensation of, 387
(p. 724) private equity firms winning targets
announcement returns and deal payment characteristics, 488
in United States, 469
restricted to transactions financed with stock offerings, 482–483
Chaplinsky, Susan J.
PIPE
as last resort choice in United States, 529
issuers, 523, 525
venture capital firms as fair weather firms, 79
Cheffins, Brian R.
balance between private equity and conventional strategic players, 263
club deals, 249
private equity funds, fixed life of, 245
public-to-private buyout activity in “deep freeze”, 264
Chen, Peng
costs of issuance, 522, 537
financial
intermediations, size diseconomies, 420
markets
competition in investment banking, 221, 239
PIPE
as last resort choice in United States, 529
choice indicates information asymmetry, 529
portfolio selection theory, 67–68
SEO market
PIPE firms denied access to, 523
PIPE has larger discount, 527
PP less expensive option, 526
venture capital firms
governance over target firms, 162
and value creation, 189n. 12
China
IT firms, 695
private equity in, 689n. 3, 694–718
capital markets for growth companies, 698–717, 699 fig. 25.1
comparison of listing standards, 705 table 25.1
delisting, 707
Main Board, 699
SME Board, 699, 700–702
property rights exchanges (equity exchanges), 713–717
future developments, 715–717
regional markets, 714
Second Board (ChiNext), 699, 702–708
exits allowed, 702
governing rules, 703–708
Third Board, 699, 708–713
future reform of, 713
New Third Board, 709–713
IPOs
four conditions, 704
primary exit strategy, 699
foreign investment restricted or prohibited, 495
NASDAQ listing, first, 495
offshore developments (1980s to mid-1990s), 694–697
red-chip listing, 695
venture capital funds, 695
first mix of domestic and offshore capital, 695
regulations, 694–698
capital market reforms, 695
China Securities Regulatory Commission (CSRC), 695
Law on Partnership Enterprises, 695, 697, 698
Nine Opinions, 695, 699
Provisional Rules Governing Administration of Venture Capital Enterprises, 698
Rules Governing Foreign-Invested Venture Capital Enterprises, 695, 697–698
limited-liability partnership groundwork, 697
tax regulations, 697–698
Rules Governing Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (Directive No. 10), 695
State Administration of Foreign Exchange (SAFE), 695
See also Asia
Chiplin, Brian
syndicates
analysis of, 211
capital constraints theory, 204
syndication study, 200 table 7.1
Christopher Steel, 54
Citicorp Venture Capital, 134
Clayton & Dubilier, 116
Clear Channel Communications, 27
sale to Providence Equity Partners, 29
Coase, R.
private equity
agency problems, 496
contracts between shareholders and stakeholders, 321
theorem, 332
Cochrane, John
private equity
funds, fees of, 38
substantial number invest in small companies, 602
returns to, 575, 576, 584
selection bias, 589–590
summary of risk-modeling approaches, 585 table 21.1
venture capital firms
management of risk and return, 68
transactions, returns of, 349, 351
valuation of, 79, 589
Colombo, Massimo
buyouts
calculating growth regression, 316
firm growth, effect on, 314, 315
Colt Manufacturing, 54
commercial bank
affiliate, 392, 397, 398, 401
issuing
agreement on management of funds, 702
debt financing commitment letter, 21
competition
bidding, 274
causing economic efficiency, 513
Dutch
Competition Act, 262
competition law framework, 262
European policy perspective, 262
in China, 704
increase in, 294, 301, 330, 504
law, 263
private equity groups in consortia causing concerns of, 263, 264
Connecticut, direct investment of pension funds in, 54–55
Cornelius, Peter
syndicates
analysis of, 211
capital constraints theory, 204
transactions, 199
cross-border, 213
Cornelli, Francesca
venture capital firms
contracting behavior, 187
financing
with convertible securities, 164
with hybrid securities, 163
governance over target firms
and value creation, 189n. 12
stage financing of target firms, 162
Cornett, M. M.
cumulative average abnormal returns, 105 table 4.5
premiums paid above market price to take a firm PTP, 106 table 4.6
private equity buyouts
positive abnormal results, 654
summary of research on, around the world, 647–652 table 23.1
PTP transactions and debt downgradings, 93
summary of impact strand, 112 table 4.7
transaction costs hypothesis, 108
corporate acquirers, 204
as lead acquirers, 206
publicly listed, 210
syndication among, 203, 205, 208, 214, 215, 216
theories on synergy, 213
corporate governance. See governance
corporate venture capitalist. See venture capital
CPP Investment Board, 42
CR4 Index, 225, 240
Cressy, Robert
private equity
buyouts, effects of, 282 table 10.1, 307
employees, effects on, 288
innovation after, 309
profitability after, 302, 303
syndicates
complementary resource theory, 205
Cumming, Douglas J., 640
Denmark
private equity in, 327
IPO
in Asia
associated with quality of investment, 681
operational change in, 686
Italy
liquidity risks of investors, 190n. 31
private equity and buyout market, 157
regulation of private equity activity, 189n. 22
LBOs
definition of, 156
governance mechanisms of, 156
in Asia, 667, 688
effects on employment, 687
improved cash flow-to-sales due to improved governance, 679
private equity, 669–670 table 24.1
returns to, 677–678 table 24.5, 679, 681, 690n. 6
in Australia, 672
innovation after, 309
legislative enactments and, 309
performance after, 302
R & D, effects on, 301
transactions, 350
summary of research on, around the world, 647–652 table 23.1
Netherlands, the, institutional investors in, 48, 49
private equity
evaluation of
difficulties, 582
firms
agency problems, 189nn. 7, 8
contracts between partners of, 66
exits, 91, 120
and length of holding period, 616
early exit indicates less control, 485
importance of reputation, 473
investment duration, 3, 97
legal environment for, 156
main objectives of, 473
ownership structures of, 9, 92
returns from limited partnerships, 39
reporting inflated valuations of targets, 470
size of funds as a prediction of firm valuation, 226, 238
summary of duration strand, 121 table 4.9
transactions, analysis of, 348
value effects of, 330
investments
by institutions, 596
syndicates
capital constraints theory, 204
complementary resource theory, 205
corporate governance and legal institutions, 457, 458
enhancing returns of target firms, 199
growing numbers of, 244
motives for entering, 220, 244
paved exit route theory, 206
venture capital
firms
and syndicated investors 160, 454
contingencies, 185
contract between partners in, 80
contracting behavior of, 188n. 1, 189nn. 11, 19
debt financing of, 162, 245
diseconomy of, 442
exits by, 158, 190n. 31, 398
by trade sales, 624
related to VC controls, 471
financing with hybrid securities, 163 187, 188n. 4
governance of, 75
governance over target firms, 161, 187, 188n. 1, 189n. 12
in Canada
financing practices of, 164, 165, 166
in Europe
financing practices of, 164
industry market-to-book variable, 392
portfolio size of, 420
post-financing state, 161
prefer to originate, 390
publicly listed, 69–71 table 3.1
risk mitigation mechanisms, 161, 174
risks, 158, 188n. 6
returns of, 349
strong control rights predicting exit strategy, 163
structure of transactions, 178
value-added services to investees, 157
reduced with diluted attention, 422
cumulative abnormal return, (CAR)
bidders' announcement returns, 478–482, 487
positive market reaction to purchases, 511
regressions of, 488, 491, 627
Dai, Na
PIPE
compared to PPs, 525
transaction, 525
private equity firms
size of funds as a prediction of firm valuation, 226, 238
public equity, private investment in, 522
Daily, Catherine
IPO
asymmetric information affecting price, 447
stock price at, 446
venture capital firms
performance-based incentive systems, 80
Da Rin, Marco
institutional investors and venture capital funds, 40
private equity
market, growth of, 219
transactions
legal environment for, 156
security choice of, 189n. 13
Davidoff, Steven
and MAC claims, 25, 27, 35n. 4
reverse termination fees
and, 26, 27, 28, 30, 32
optionality of, 31
private equity
bid failures, 31
contract, 6
evolution of, 19
reputation of acquirer and, 33
reversals of, 16
structure of, 35n. 1
terms, shift in, 34
Davis, Steven
hedge funds, low conflicts of interest, 503
private equity
buyouts
effects of, 282 table 10.1
employees, effects on, 287–288
productivity, effects on, 289, 290, 293
firms as catalysts of creative destruction, 274
funds, low conflicts of interest, 503
deal structure
as risk mitigation mechanism, 178–186
lack of knowledge about, 157, 167
LBOs, 659
of clubs, 249–250, 254, 259
DeAngelo, Harry
buyouts
positive abnormal returns, 654
specialists, advantage of, 93
costs of maintaining a stock exchange listing, 96
cumulative average abnormal returns, 105 table 4.5
premiums paid above market price to take a firm PTP, 106 table 4.6
private equity buyouts
summary of research on, around the world, 647–652 table 23.1
SEO timing, 528
summary of impact strand, 111 table 4.7
DeAngelo, Linda
buyouts
positive abnormal returns, 654
specialists, advantage of, 93
costs of maintaining a stock exchange listing, 96
cumulative average abnormal returns, 105 table 4.5
(p. 727) premiums paid above market price to take a firm PTP, 106 table 4.6
private equity buyouts
summary of research on, around the world, 647–652 table 23.1
SEO timing, 528
summary of impact strand, 111 table 4.7
debt-to-equity ratio, 245, 246, 261
Degeorge, F.
accounting performance before and after going public, 132
operating performance post-IPO, 144
summary of RLBO literature, 133 table 5.1
reverse LBOs, 115
Delphion, 307
Denis, David J., 55n. 1
LBO
comparing a leveraged recapitalization with, 116
financial distress of, 116
research concentrated in United States, 522
summary of process strand, 118 table 4.8
Denmark
direct investment by institutional investors in, 45–48, 46 table 2.4
investor protection in, 653
pension fund investment assets in, 48 table 2.5
private equity in, 327–343
return to direct investment in, 52–53, 52 table 2.7
Desbrières, Philippe
buyout
French firms and, 659
profitability after, 302
summary of research on, around the world, 647–652 table 23.1
Dessi, Roberta
venture capital firms
contracting behavior, 187, 188n. 4
financing with hybrid securities, 163
Diller, Christian
private equity transactions
IRR of, 350, 354, 355
DLJ Merchant Banking, 203
Drexel Burnham Lambert, 19
junk bonds, 20
dry power, 2, 4 fig. I.4
Dutch competition law, 262
Dutch Construction case, 256–257, 259–260
Dutch T-Mobile case, 257–258
Easterwood, J. C.
financial distress of LBOs, 116
premiums paid above market price to take a firm PTP, 106 table 4.6
summary of impact strand, 112 table 4.7
undervaluation hypothesis, 109
Eddey, Peter H.
LBOs
in Asia, returns to, 677–678 table 24.5
in Australia, 660
premiums in, 661
private equity buyouts
free cash flow issue, 660–661
summary of research on, around the world, 647–652 table 23.1
Employment Retirement Income Security Act (ERISA), 495
entrepreneurs
private equity deals
bargaining power determining investment, 421
choice of PE firm based on track record, 421
Espenlaub, Suzanne
IPOs, postissue performance, 446
exit behaviors of
private equity firms, 188n. 5, 190n. 31
venture capital firms, 188n. 5, 190n. 31
Essent Milieu N. V., 261–262
Europe
institutional investors and venture capital funds, 40
listed private equity, 556 table 20.2
buyouts in 659
capital structure of, 560–562
characteristics of, 55
commitment cover, 562 fig. 20.2
corporate structure and governance of, 559
descriptive characteristics of, 557–559 table 20.3
discounts/premiums, 565 fig. 20.4, 566 fig. 20.5
protection, 566
and secondary LP pricing, 569 fig. 20.6
dividends to, 562–563, 563 fig. 20.3
downturn, experience in, 567–575
private equity experience, 568 table 20.5
fees, 563–565, 564 table 20.4
net leverage as percentage of NAV, 561 fig. 20.1
performance of, 570–575, 572 table 20.8, 573 table 20.9, 574 fig. 20.7
selling funds at discount, 571 table 20.6
regulation of, 562–563
taxation of, 562–563
valuation policy, 565–556
See also Eurazeo; Germany; Italy; Gimv; 3i Group; Wendel
European Competition Law (ECL), 243–268
European Council Regulation on Merger Control (EMCR), 244, 250, 252–254, 262, 263
European Court of Justice case laws, 264n. 1
European Patent Office (EPO), 307
European Private Equity & Venture Capital Association (EVCA), 224, 300, 310, 322n. 12
institutional investors and venture capital funds, 40, 59, 68
Evans, David S.
LBOs
returns to, in Asia, 677–678 table 24.5
private equity firms
in Australia, 676
size of, 60
Factset Mergermetrics, 33
Fama, Eugene F.
and French model, 147, 154n. 9
corporate governance and agency problems, 642
hedge fund and private equity transactions, 505
industry groups, 584
IPO as source of expanded capital, 445
principal/agent theory, 80
F & C Private Equity
downturn experience, 569
issuing preference shards, 560
Fang, Lily
Asian private equity, 669–670 table 24.1
governance and change in, 682
“negative control” clauses in shareholder agreements, 672
fees
auditing, 526
front-end-loaded, 552
fund-of-fund, 387, 388, 389, 401, 414
second layer of, 553
structures, 563–565, 564 table 20.4
futures, 53
in United Kingdom, 96
investment bankers' fees, 528
listing, 75
management, 38, 39, 503, 552, 594, 611
performance gross of, 37, 38
private equity, 347, 349, 350, 351, 359, 418, 591, 614
higher fees, 550
listed, 591, 614
lower fees, 549
reverse termination, 23, 25, 32
syndication, 249
underwriters and placement agents, 543n. 2
Ferris, William
Asian private equity, 669–670 table 24.1
Australian LBO market, 672
financing small companies in Australia, 658
Fidrmuc, Jana P.
private equity
buyouts help managers escape bureaucracy of corporations, 277
difference between MBOs and private equity-backed deals, 100
PTP transactions, intent strand, 102–103 table 4.4
Filatotchev, Igor
IPO firms
asymmetric information affecting price, 447
governance structures of, 10
IPOs
governance system
changing as setting of firm changes, 460
mitigating principal-principal moral hazard problems, 455
private equity-backed
summary of research, 451–452 table 16.1
syndicate-backed, more likely to develop independent boards, 455
venture capital
bank-affiliated, and poor IPO performance in France, 450
syndicated
creation of moral hazards, 454
increase in, 454
“principal-to-principal” agency problem, 454
firm size
and announcement returns, 488
and exit types, 631
and free cash flow hypothesis, 100
and information asymmetry, 627
and wealth gains in LBO, 108
buyout
remain boutique size, 58
correlated to decision to go public, 616
determinants of, 81
in year before the deal, 316
patterns of, 58–67
private equity
and growth expectations, 57
impact of size on acquired firms, 309
related to discounts, 528
venture capital
remain boutique size, 58
Fleming, Grant
delayed exit, 398
LBOs, 11
returns to, in Asia, 677–678 table 24.5, 679
Fortress Investment Group, 58
Fotak, Veljiko
institutional investors, new, summary of, 500–502 table 18.1
sovereign wealth fund acquiring voting rights
lack of transparency of, 499
mixed results, 499
positive excess returns to target firms, 499
rapid growth rate of, 499
France
buyouts, 659
facilitate transfer of family firms, 322n. 1
Frankfurter, G. M.
cumulative average abnormal returns, 105 table 4.5
managerial ownership and PTP, 104
summary of impact strand, 111 table 4.7
French, Kenneth R.
hedge fund and private equity transactions, 505
industry groups, 584
IPO as source of expanded capital, 445
Frostman Little, 134
fund of funds
compared to private equity, 4
indirect private equity investment, 593–594
investment in private firms, 37, 38, 39 table 2.1
managers, 10, 594
fees of, 553
value provided, 386–416
(p. 729) rate of return to, 4
fundraising
and stock market climate, 75
for venture capital, 68, 389, 392, 646
from institutional investors, 40
global, 349, 653
in Asia, 668
in Europe, 59
in the cycle of a fund, 503, 612
LP model, 67
private, 58, 131, 646
track record, effect on, 79
Galante's Private equity and Venture Capital Directory, 390
Galetovic, Alexander
market concentration in venture capital market, 220
measure for calculating market share of PE firm, 225
venture capital firms and “closed shop” thinking, 79
gatekeeper, private equity, 51, 388
compared to mutual fund manager, 387
provides value to investors, 387
GDS Services. See Blackstone Group
General Electric, 203
general partner
in China, role of, 698
private equity, 354, 550
responsibility of, 503
revenues, 594
generalist (PE/VC firms), 59, 62, 82n. 2
investors, 161,
Warburg Pincus, 63
geopolitical threats, 499
Georg Jensen, 333, 339
Germany
corporate governance system, 80
Federal Financial Supervisory Authority, 505
German Securities Trading Act, 505
hedge fund and private equity target events, 506 fig. 18.1
institutional investors in, 51, 497–505
banks, 496, 498
mutual funds, 496, 498
“new”, 499–505
summary of returns to, 500–502 table 18.1
pension funds, 496, 498
New Market, 82n. 7
private equity, 495–520
activism, differences in target and rival firm characteristics relative to, 510 table 18.2
agency problems, 496–497
corporate governance system, 80
cumulative abnormal returns
around disclosure of holding at least 5% voting rights, 512 fig. 18.2
determinants of, 514 table 18.5
to industry rivals, 512 table 18.4, 513 fig. 18.3
to targets, 511 table 18.3
employment, positive impact on, 495
Fama-French buy and hold abnormal returns to targets, 515 table 18.6
gross domestic product, positive impact on, 495
innovative activity, positive impact on, 495
long-term valuation effects on targets, 515
structural decisions of venture capital firms, 74
VC firms that went public, 74 table 3.2
Gilson, Ronald J.
IPOs
stock price affected by importance of investors, 448
private equity investments, 309
asymmetric information and, 614–615
exits seen as corporate governance mechanism, 612, 613
state funds increasing higher risk-and-return profiles, 499
venture capital firms
exits, 2
financing practices of
United States tax influence, 165
governing
behaviors, 187
and national institutional environments, 461
syndicates
opportunity for reputation building, 455
loan structures of, 247
Gimv
asset management of, 559
Goh, J.
cumulative average abnormal returns, 105 table 4.5
summary of impact strand, 111 table 4.7
undervaluation hypothesis, 109
Goldfarb, Lawrence
PIPE transactions, 544n. 14
public issues, higher issue costs, 522
venture capitalist limited ability, 420
Goldman Sachs,
club deals in Asia, 674
institutional investors, 51
Gompers, Paul A.
agency problems, 446
data sources, shortcomings of, 431, 432
hedonic regression approach, 227, 418, 427
institutional investors
buying VC stocks, 68
in Canada, 47
in United States, 40
IPOs
and higher returns earned by PE firm, 613
governance system mitigating principal-principal moral hazard problems, 455
private equity-backed
summary of research, 451–452 table 16.1
venture capital-backed
pressure to demonstrate exit track records, 456
(p. 730) pension funds
barred from investing in private equity until “prudent man” rule, 495
private equity
agency costs, reducing, 614
-backed firms, valuation of, 417, 418
bargaining power determining investment, 421
correlation, 588–589
evaluation of
difficulties, 582
exits, 612, 616
by trade sale, not usually used with technology companies, 617
IPO preferred exit mechanism, 627
timing of, 630
firms
capital managed per partner, 418
contracts between partners of, 66
limited partnership model of, 58
public understanding of, 57
valuation and increases in inflow of funds, 222, 238
gross domestic product, effect on, 495
investments
correlation, 586–587
evaluation of, stale pricing problem, 583
investors
contractual restraints imposed on managers by, 462
supporting start-ups, 495
market
deal values, inflow of funds in the industry impacting, 226, 238
demand shifts affecting value, 221
effect of competition and industry concentration, 220
growth of, 219
syndicates
capital constraints theory, 204
enhancing returns of target firms, 199
paved exit route theory, 206
risk reduction motives and, 211
venture capital-backed
firms, refinancing of, 442n. 2
IPOs, 132
retained ownership signaling value, 448
venture capital firms
amount of capital raised and effect on valuation of companies, 220
and syndicated investors, 161
“bridging” asymmetric information with strong relationships, 470
contract between partners in, 80
exit
flipping too early, 616
timing, 471
expertise, 392
financing
United States restrictions on using debt, 165
with convertible securities, 164, 189n. 16
governance over target firms, 161, 187, 189n. 12
grandstanding of, 449
importance of track record, 79
limited data in assessing investments, 63
management of risk and return, 68
overshooting market developments, 79
performance-based incentive systems, 80, 162
risk, 392
mitigation strategies, 160
valuation
impacted by market conditions, 419
increased in later stages of development, 424
value-added services to investees, 157
Gottschalg, Oliver
LBOs, returns to, 679
private equity
funds
average equity beta for, 584
fees of, 38
summary of risk-modeling approaches, 585 table 21.1
systematic equity risk of, 584
returns to, 350, 575, 576
venture capital firms
exits, 158
Grilli, Luca
buyouts
firm growth rates after, 314, 315
calculating growth regression, 316
Groh, Alexander
private equity
buyouts
summary of research on, around the world, 647–652 table 23.1
funds
summary of risk-modeling approaches, 585 table 21.1
systematic equity risk of, 584
Grossman, Sanford J.
private equity
agency problems, 496
mitigated by
aligning interests between managers and shareholders, 499
monitoring activities of blockholders, 499
free-rider problem, 92, 643
managerial turnover, 276
growth capital, 592
Gulf Venture Capital Association, 206
Gunay, E.
cumulative average abnormal returns, 105 table 4.5
managerial ownership and PTP, 104
summary of impact strand, 111 table 4.7
(p. 731) Guo, Shouran
buyout sample, analysis of, 349
premiums paid above market price to take a firm PTP, 106 table 4.6
private equity transactions, 348, 350
syndicates
divisional interest theory, 206
enhancing returns of target firms, 199
private equity firms and corporate acquirers
cooperation between, 203
undervaluation hypothesis, 108
value creation of LBO wave, 115
Gurung, Anduradha
LBO markets
in Asia, 672
operational and strategic skills valued in, 687
in China, 689n. 4
Hall, Bronwyn
private equity
buyouts, effects of, 283 table 10.1
long-run investments, effects on, 290
R & D, effects on, 301, 304, 305
venture capital index, 587
Halpern, Paul
incentive realignment hypothesis, 655
relation between decision to go private and managerial shareholdings, 100, 104
PTP transactions, intent strand, 102–103 table 4.4
private equity buyouts
deterioration of stock performance before buyout, 656–657
free cash flow hypothesis, 655
poor stock performance influences choice of target firms, 659
summary of research on, around the world, 647–652 table 23.1
tax costs increase chance of LBO, 656
summary of duration strand, 121 table 4.9
summary of impact strand, 112 table 4.7
syndicates, hybrid, 203
Harlow, W. V.
prebuyout insider trading, with MBOs, 97
premiums paid above market price to take a firm PTP, 106 table 4.6
summary of impact strand, 112 table 4.7
undervaluation hypothesis, 108
Harris, Richard
private equity
effects of PE buyouts on employment, productivity, and innovation, 279–286 table 10.1
LBOs, effects of, 283 table 10.1
productivity, effects on, 290, 301, 302, 304
drop in employment after PTP transactions, 95
summary of process strand, 118 table 4.8
Hart, Oliver D.
private equity
agency problems, 496
mitigated by
aligning interests between managers and shareholders, 499
monitoring activities of blockholders, 499
managerial turnover, 276
venture capital firms
contracting behavior, 189n. 11
principal/agent theory, 80
free-rider problem, 92, 643
Hartmann-Wendels, Thomas
venture capitalists
agency problems, 158, 160, 189n. 7
governance of investee firms, 157
principal-agent problems, 188n. 7
risk mitigation mechanisms, 189n. 9
valuation, 160
Haushalter, David
PIPE
as last resort choice in United States, 529
issuers, 523, 525
Heckman, James J.
analysis, 145, 314
buyouts
firm growth after, 314
selection approach, 432, 529, 531
hedge funds, 245, 397
compared to private equity funds, 503–504
fast turnaround, 504
in Germany, 517n. 12
managers of, 503
new institutional investors, 497, 498, 499
outside private equity, 414n. 1
“shareholder activism” and, 496
single manager compared to funds of, 387
structure of, 503
hedonic pricing model. See Gompers; Lerner; United Kingdom, MBOs in, analysis of
Heineken and Carlsberg, 203
Hellmann, Thomas F.
private equity
exits and signaling theory, 615
financing the growth of a company, 495
multitask model, 278
venture capital firms
contracting behavior, 187, 188n. 4, 189nn. 11, 14, 15
convertible securities, use of, 189n. 16
financing
with convertible securities, 163, 164, 178, 189nn. 15, 17
with hybrid securities, 162
governance over target firms, 161
postfinancing state, 161
strong control rights predicting exit strategy, 163
value-added services to investees, 157, 390
Herfindahl-Hirschman (HHI) Index, 225, 240, 508, 513
Herschke, Florian T., 82 n. 6
listed private equity firms
risk and return characteristics of, 612
venture capital firms, publicly listed, 69–71 table 3.1
(p. 732) Hertzel, M.
PIPE discounts
and information asymmetry costs, 527, 528
and issue size, 528
calculation of, 535
Hg Capital Trust
as an example of buyout, 592
downturn experience, 570
Hirsch, Julia
venture capital firms
contracting and control rights, 189n. 11
decision-making, 64, 65
risk mitigation mechanisms, 174
security choice, 189n. 13
Hochberg, Yael V.
data sources, shortcomings of, 431, 432
financial markets
role of interfirm networks in, 221
private equity
-backed firms, valuation of, 417
firm, measuring the previous success of, 226
market, interfirm cooperation limiting competition, 220
syndicates leading to interfirm networks, 223, 225, 239
venture capital firms
and companies seeking venture capital, 220
governance over target firms, 162
and value creation, 189n. 12
networking affecting performance, 449
panel structure of round data, 419
portfolio strategies, 189n. 10
syndication decreasing competition in market, 220
Holmstrom, Bangt
LBOs
performance after, 302
public company executives emerging in 1990s, 251
private equity
compensation contracts tying performance to pay, 275
free-rider problem, 643
venture capital firms
debt financing, 162
governance over target firms, 188n. 1
Holthausen, R. W.
examining accounting and stock market measures, 132
reverse LBOs, 115, 119
summary of process strand, 118 table 4.8
summary of RLBO literature, 133 table 5.1
Home Savings Association, 54
Hong Kong
IPOs in, compared to United States, 4
Hoskisson, Robert E.
agency problems in different national settings, 461
buyouts
R & D, effects on, 301
corporate governance and differences in national institutions, 456, 457, 458
Howe, J. S.
prebuyout insider trading, with MBOs, 97
premiums paid above market price to take a firm PTP, 106 table 4.6
summary of impact strand, 112 table 4.7
undervaluation hypothesis, 108
Hsu, David H.
private equity
-backed firms
valuation of, 417, 418
bargaining power determining investment, 421
reputation seen as attracting targets, 428
venture capitalists
experience of, 390
valuation tied to founders' characteristics, 419
hybrid syndicates, 208
compared to private equity, 203
target company, split and divided, 205, 213, 216
Huntsman Corp., 27, 29
IMS Health, 34
India, private equity in, 689n. 3
See also Asia
industry concentration, 219–242
and competition, 220, 221
in United Kingdom, 224–232
industry structure
and industry concentration, 220
effects of, 223
information asymmetry. See asymmetric information
initial public offering (IPO)
annual distribution of RLBOs compared to, 135 table 5.2
exits, 3 fig. I.2
fall in, 4
governance of firms
agency theory and, 446
of target firms, 445–486
market cycles, 2
ownership structure of RLBOs and sponsors' post-IPO board share, 143 table 5.8
performance of
target firms, 445–468
nonbuyout-backed, calendar-time market-adjusted, 151–153 table 5.13
stock issuance
choice between PP and SEO, 529
hot markets, 528
run-up, 528
size of issues and issuers, 527–528
timing, 528
summary statistics
for buyout firms, 142 table 5.7
for RLBOs and, 136–137 table 5.3
institutional buyout (IBO), 90 table 4.1, 91
institutional investors, 37–56
issues with direct investments by, 51–55
Interactive Data Corp., 34
internal rate of return (IRR), 4, 5
average by fund type, 6 fig. I.8
by fund size, 8 fig. I.12
rolling horizon by fund type, 7 fig. I.9
investment bank
as venture capital firm, 392, 397
investment committee
joint decision by, 65, 596
review due diligence on investment opportunity, 65
size of, 66
investment professionals
expertise of, 504
fees earned by, 2
number of, in a firm, 59, 60, 62, 66, 351
review due diligence on investment opportunity, 65
Investment Bankers Association of America, 199
Ippolito, Richard A.
mutual fund managers, compensation of, 387
PTP transactions
increase in pension terminations after, 101
intent strand, 102–103 table 4.4
Ireland
investor protection in, 653
Italian Venture Capital Association (AIFI), 157, 158, 167, 168
Italian PEM database, 186, 190n. 25
Italy
buyouts
facilitate transfer of family firms, 322n. 1
market in, 157, 659
venture capital firms in
agency issues and, 158–160
governance of, 156–196
risk mitigation mechanisms, 158, 159 fig. 6.1
survey results
board representation, 180 fig. 6.10, 181 table 6.10
contingencies, 185 fig. 6.12
control and protective rights, 181, 182 table 6.11, 184 fig. 6.11
deal structures, 178
due diligence timing, 175 fig. 6.6
equity stake acquired by all investors, 179 table 6.9
exit routes, 186 fig. 6.13
financial securities adopted, 179 table 6.8
geographical distribution of target firms, 170 fig. 6.4
industry distribution of target firms, 171 fig. 6.5
investor characteristics, 172–173 table 6.3
questionnaire package contents, 190n. 26
risk analysis employed by PE investors, 176 table 6.6
relationship development between venture capitalists and survey principals, 190 n. 28
sample characteristics, 169
survey response rate, 169 table 6.1
syndication, 177 fig. 6.8, 178 fig. 6.9
type of transaction, 160 fig. 6.3, 173 table 6.4
typical transaction profile, 171 table 6.2
valuation models
by type of transactions, 177 table 6.7
used, 176 fig. 6.7
years of experience of PE funds included, 174 table 6.5
Jackson, Gregory
agency problems in different national settings, 461
corporate governance
and differences in national institutions, 456, 457
heterogeneity of, 460
Jain, Bharat
IPO determinants, 446
IPOs
private equity-backed
summary of research, 451–452 table 16.1
venture capital-backed, 132
private equity
increasing operational and financial performance of a company, 495
James, W. H.
private equity firms
good reputation, 485
reaps better lending terms, 473
PTP transactions
increase in pension terminations after, 101
intent strand, 102–103 table 4.4
Japan
buyouts in, 661–662
corporate spin-offs and divestitures in, 688
structural decisions of VC firms, 74
See also Asia
Jegadeesh, Narasimhan
calculation of long-term returns, 517n. 15
characteristics of LPE, 550
pricing of traded securities, 575, 576
private equity investments
LPEs, 550
Jensen, Michael C.
empire building, 92
LBOs
duration of private status of, 120
generation of economic efficiencies, 300
governance mechanisms of, 156
mature industries and, 641
organizational form of, 119
performance after, 302, 302
restructuring of, 131
principal/agent theory, 80
(p. 734) private equity
agency
problems, 496, 613, 627, 642
-theoretical background, 496
theory, 630
as economic force beneficial to economy, 328
compensation contracts tying performance to pay, 275
corporate governance, 460, 642
free cash flow hypothesis, 275, 421, 642, 655
funds
valuation maximization in, 330
leverage as a governance mechanism, 336
managers' expropriation, 496
monitoring managers, 275
reducing agency problems, 275
venture capital firms
agency costs, 188n. 7
debt financing of, 162, 245
incentive alignment effect, 448
Jin Li
syndicates
hybrid, 203
Johan, Sofia A.
institutional investors in the Netherlands, 48, 49
private equity firms
contracts between partners of, 66
exits, 91, 120
investment duration, 3
ownership structures, 9
returns from limited partnerships, 39
summary of duration strand, 121 table 4.9
venture capital firms
contract between partners in, 80
JZ Capital
downturn experience, 569
Kahan, Marcel
hedge funds, low conflicts of interest, 503
mutual funds as investors, 498
pension funds
as investors, 498
low conflicts of interest, 503
portfolio company, tax benefits and, 517n. 4
Kanniainen, Vesa
venture capital
portfolio size, 420
syndication increases portfolios through resource sharing, 455
value added reduced, 422
Kansas
pension funds direct investment in, 53–55
prohibition of direct investment of pension funds, 54
Kansas Investment Funds, 54
Kansas Public Employees' Retirement System, (KPERS), 53–54
Kaplan, Steven
KKR investment strategies, 243
LBOs
bankruptcy, risk of, 291, 292
definition of, 156
drop in employment after PTP transactions, 95
duration of private status, 119, 120
employees, effects on, 287
financial distress of, 116
going public again, 132
hypotheses
employee-wealth-transfer, 384n. 6
information-advantage, 384n. 6
reduced agency-cost, 384n. 6
in Asia, 667, 671, 673
and first wave of buyouts in U. S. and Europe, 668
exits
trade sales most common form of, 681
higher total factor productivity, 687
improved cash flow-to-sales due to improved governance, 679
in Australia, growth of, 672
performance after, 301, 348
profitability after, 303
public company executives emerging in 1990s, 251
returns to, 679
tax benefits of, 95
MBOs, 224
availability of debt financing affecting price paid to acquire a buyout, 226
investment by management affecting price paid by investors, 226
technology dummy and, 226
vendor dummy and, 226
posttransaction performance of, 113, 114, 115
“operational engineering”, 690n. 7
private equity
active ownership improves managerial behavior, 682
and asymmetric information, 614
buyouts
cash flow data on, 349
effects of, 283 table 10.1
cumulative average abnormal returns, 105 table 4.5
performance drivers of, 350
postbuyout performance in U.S., 655
purchase is majority control, 472
summary of research on, around the world, 647–652 table 23.1
club deals, definition of, 246
definition of, 2
diseconomy of scale, 437
firms
agency problems, 189nn. 7, 8
and debt financing, 1
decision-making in, 64
diseconomy of scale, 437
equity ownership and PTP transactions, 92
funds, fees of, 38
(p. 735) principal-agent problems, 188n. 7
relative price measure, 224–225, 228
size of, 61
valuation of, 221–222, 432
funds
size and performance, 420, 421, 422, 427
holding periods, 276
investors
contractual restraints imposed on managers by, 462
performance related to firm size, 419
public market equivalent, 597
returns to, 575
value effects of, 330, 348
public-to-private
tax benefits as part of decision, 656
premiums paid above market price to take a firm, 106 table 4.6
summary of duration strand, 121 table 4.9
summary of impact strand, 111 table 4.7
summary of process strand, 117 table 4.8
tax benefits hypothesis, 108
undervaluation hypothesis, 114
venture capital firms
contracting, 189nn. 15, 20
contingencies, 185
corporate governance and differences
in legal institutions, 458
in national institutions, 457, 458
debt financing, 162
diseconomy, 442
exits, 158, 617
by secondary buyouts, 618
financing of, 165
with convertible securities, 164, 189nn. 15, 17
governance over target firms, 161, 187, 188n. 1
importance of track record, 79
investor rights, 187
invest in entrepreneurs, 472
postfinancing state, 161
prefinancing stage, 160
reputational incentives higher in common law countries, 458
risk mitigation strategies, 160, 189n. 9
risks, 158
returns to, 350
structure of transactions, 178
value-added services to investees, 157, 390
Kaserer, Christoph, 82n. 6
private equity
discounts, 614
funds, trading of, 612, 630
transactions, 10
IRR of, 350, 354, 355
Keuschnigg, Christian
venture capital
portfolio size, 420
syndication increases portfolios through resource sharing, 455
value added reduced, 422
Kieschnick, Robert
disputes free cash flow hypothesis, 100, 104
PTP
tax liabilities not a factor in decision to go private
transactions, intent strand, 102–103 table 4.4
private equity buyouts
free cash flow hypothesis, 655
summary of research on, around the world, 647–652 table 23.1
undervaluation hypothesis of LBO, 98
tax benefits hypothesis, 108
Kini, Omesh
IPO determinants, 446
IPOs
private equity-backed
summary of research, 451–452 table 16.1
venture capital-backed 132
private equity
increasing operational and financial performance of a company, 495
KKR, 590, 611, 618
club deals in Asia, 674
downturn experience, 568
investment strategies, 243
Klein, April
hedge fund as blockholder
average excess returns, 499
institutional investors, new, summary of, 500–502 table 18.1
private equity investors as blockholders, positive returns to, 511
Knill, April
diversification, 386
fund-of-funds managers, 10
outcome of PC, 389
PC exit, 394
portfolio size, 420
venture capital data, 390
Kogut, Bruce
private equity professionals, value of, 63
syndicates
complementary resource theory, 205
syndication study, 202 table 7.1
Kohlberg, Kravis, Roberts
Accel, 34
acquisition of RJR Nabisco, 22
buyout of SBS Broadcasting, 203
first private equity firm, 19
investment strategies of, 243
KPMG, 206
Kroger Co., 116
Lahr, Henry, 82n. 6
listed private equity
firms
risk and return characteristics of, 612
funds, trading of, 612, 630
discounts, 614
venture capital firms, publicly listed, 69–71 table 3.1
(p. 736) La Porta, Rafael
agency problems in different national settings, 461, 644
buyouts, 310
and legal protection encourage financial development, 660, 663
legislative enactments and, 309
corporate governance and differences in national institutions, 456, 457, 461
law analysis of
countries' company and bankruptcy laws, 645, 658
investor protection, 653, 674
private equity club deals, 245
“law matter” view, 157
shareholder protection, 644, 645
Larcker, D. F.
examining accounting and stock market measures, 132
reverse LBOs, 115, 119
summary of process strand, 118 table 4.8
summary of RLBO literature, 133 table 5.1
later stage
buyout investments, 222, 224, 239, 244, 662
credit facilities, potential gaps in, 249
investments, 221
stages of, 351
investors, 8, 131
syndicate deals, 456
LD, 47
Lee, Charles M.
closed-end mutual funds, 80, 612
trading discounts, 614
agency costs and, 614
Lee, D. S.
cumulative average abnormal returns, 105 table 4.5
summary of impact strand, 111 table 4.7
undervaluation hypothesis, 109
Lee, Peggy M.
IPOs
private equity-backed
summary of research, 451–452 table 16.1
venture capital-backed
perform better than non-venture-backed, 449
pressure to demonstrate exit track records, 456
Leeds, Roger
Asian private equity, 669–670 table 24.1
governance and change in, 682
“negative control” clauses in shareholder agreements, 672
Lehman Brothers
failure of, 560
Lehn, Kenneth
cumulative average abnormal returns, 105 table 4.5
LBOs
Asian, abnormal shareholder gains in, 676
free cash flow hypothesis in 98, 100, 104, 655
premiums paid above market price to take a firm PTP, 106 table 4.6
private equity buyouts
positive abnormal returns, 654
summary of research on, around the world, 647–652 table 23.1
PTP
transactions, intent strand, 102–103 table 4.4
tax benefits hypothesis, 108
summary of impact strand, 111 table 4.7
lender out condition. See banks
Lerner, Josh
data sources, shortcomings of, 431, 432
hedonic regression approach, 227, 418, 427
IPOs
and higher returns earned by PE firm, 613
hierarchy of investors, 448
prior research on, focused on United States, 456
stock price affected by importance of investors, 448
venture capitalists acting to reduce initial underpricing, 448
institutional investors
in Canada, 47
in United States, 40
LBO markets
in Asia, 672, 676
operational and strategic skills valued in, 687
in China, 689n. 4
pension funds
barred from investing in private equity until “prudent man” rule, 495
private equity
agency costs, reducing, 614
-backed firms, valuation of, 418
buyouts, effects of, 283 table 10.1, 307
gross domestic product, effects on, 495
innovative efforts, effects on, 302, 322, 495
measured by patent data, 322n. 2
legislative enactments and, 309
long-run investments, effects on, 291
performance, 349
R & D, effects on, 301, 305
summary of research on, around the world, 647–652 table 23.1
correlation, 588–589
exits, 612, 616
by trade sale, not usually used with technology companies, 617
IPO preferred exit mechanism, 627
firms
bargaining power determining investment, 421
contracts between partners of, 66
decision-making in, 65
knowledge and decision-making rights in target firms, 462
legal environment for, 156
limited partnership model of, 58
partners' compensation in, 65
(p. 737) public understanding of, 57
refocus innovative portfolios of target firms, 472
valuation and increases in inflow of funds, 222, 226, 238
fund-of-fund managers, performance of, 389
investors
contractual restraints imposed on managers by, 462
legal protection of, 653, 654
investments, 309
correlation, 586
evaluation of, stale pricing problem, 583
through funds, 40
market
demand shifts affecting value, 221
effect of competition and industry concentration, 220
growth of, 219
reverse LBOs, 115
summary of RLBO literature, 133 table 5.1
syndicates
capital constraints theory, 204
corporate governance and legal institutions, 458
enhancing returns of target firms, 199
motives for entering, 220
paved exit route theory, 206
reasons for, 223
risk reduction motives and, 211
syndication study, 200 table 7.1
venture capital-backed
firms, refinancing of, 442n. 2
IPOs, 132
venture capital firms
amount of capital raised and effect on valuation of companies, 220
and syndicated investors, 160
capital managed per partner, 418
consortia assessing buyout and merger landscape, 199
contract between partners in, 80
debt financing, 162
exits, timing of, 471
governance over target firms, 161
importance of track record, 79
financing practices of
in developing countries, 164
United States restrictions on using debt, 165
limited data in assessing investments, 63
limited partnership agreements in, 67
management of risk and return, 68
overshooting market developments, 79
performance-based incentive systems, 80
prefinancing stage, 160
risk, 392
selection criteria used by, 176
syndicating first-round venture investments, 390
risk mitigation techniques, 160
valuation
impacted by market conditions, 419
increased in later stages of development, 424
value-added services to investees, 157
leverage effect, 246, 357
leveraged buyout (LBO), 89–180, 271–299
activity and premiums, 640 fig. 23.1
annual distribution of RLBOs compared to, 135 table 5.2
average volume, 641 fig. 23.2
bankruptcy, risk of after, 291–292
bootstrap acquisitions, 271
cumulative average abnormal returns, 105 table 4.5
definition of, 156
definitions of public-to-private terms, 90 table 4.1
employees, effects on, 287–289
financials of, 2, 90
debt, 2, 125n. 3
distress, 116
private equity sponsor, 2
firms, as a type of investor in IPOs, 448
four strands in the literature, 97–122, 98 fig. 4.1
duration, 119–122
summary, 121 table 4.9
impact, 101–110
summary, 111 table 4.7
intent, 98, 102–103 table 4.4
process, 110–119
summary, 117 table 4.8
GEE negative binomial model, 319 table 11.10
governance impact on, 188n. 1
in Asia, 667–693
in Australia, 660
in Continental Europe, 657–660
in emerging markets, 662
in Germany, 659
in Italy, 659
in Japan, 661
innovation output, effects on, 315–316
international trends in, 122–123
legal environment for, 156
long-run investments, effects on, 290–291
motivations for, 91–97
bidder competition, 109
control hypothesis, 92–93, 98
free cash flow hypothesis, 92, 98
incentive realignment hypothesis, 92, 98, 125n. 2
takeover defense hypothesis, 96, 98
tax benefits hypothesis, 95, 98, 108
transaction costs hypothesis, 96, 98, 108
undervaluation hypothesis, 96, 98, 108
transfer of wealth hypothesis, 93–95, 98, 107
OLS and endogenous treatment model, 318 |table 11.9
OLS and endogenous treatment model (IV and CF), 317 table 11.8
performance for subsamples, 149–150 table 5.12
productivity, effects on, 289–290
public-to-private activity, 122 fig. 4.2
in continental Europe, 123 fig. 4.4
in United Kingdom, 123 fig. 4.3
wealth gains from, 99 table 4.3, 104, 125n. 4
(p. 738) See also management buyins; management buyouts; private equity; reverse leveraged buyouts (RLBOs)
Li, Xi
LBOs
in Asia
Chinese privatizations, 679, 687
returns to, 677–678 table 24.5
in China, 689n. 4
private equity, 669–670 table 24.1, 672
exit announcement news, leaks, 615
Lichtenberg, Frank
private equity
buyouts, effects of, 284 table 10.1
employees, effects on, 287, 289
long-run investments, effects on, 290
productivity, effects on, 289, 290, 302, 303, 304
investments in
summary of risk-modeling approaches, 585 table 21.1
summary of process strand, 117 table 4.8
limited partner/partnership
funding, sources of, 40
liquidity constraint, 471
listed private equity. See private equity, listed
Ljungqvist, Alexander
buyout funds, cash flow data of, 349
fall in IPOs, 4
international investment bankers, list of, 544n. 7
IPOs
choice between private and public equity, 522
LBOs, returns to, 679
private equity
funds, portfolio companies of, 584
markets
competition and, 222
demand shifts affecting value, 221
effect of competition and industry concentration, 220, 238
returns to, 575
venture capital
diseconomy, 442
firms
amount of capital raised and effect on valuation of companies, 220
internal rate of return, 80
funds
size and performance, 420
Loan Market Association (LMA), 247
Lockett, Andy
syndicates
analysis of, 211
complementary resource theory, 205
determining lead acquirer, 207
fund size and, 456
lead firm
more likely to have hands-on influence over investees, 455
providing solid information to protect reputation, 455
seeking larger equity stake, 455
nonlead members and increased board membership, 455
partner selection process study, 203
process of, 199, 225
riskier than stand-alone ventures, 454
study of, 200 table 7.1, 201 table 7.1
use of, greater in United States than in Europe, 461
Long, William F.
private equity
buyouts, effects of, 284 table 10.1
innovative efforts, effects on, 302, 305
long-run investments, effects on, 291
R & D, effects on, 301
performance gains for LBOs and MBOs, 115
public market equivalent (PME), 355
summary of process strand, 118 table 4.8
Lopez de Silanes, Florencio
private equity buyouts
bankruptcy, risk of, 292
exits, 2
internal rate of return, 277
venture capital funds
size and performance, 420
value added reduced with diluted attention, 422
Loughran, Tim
IPOs
asymmetric information affecting price, 447
“corruption hypothesis”, 449
return to, 389
underpricing, trading window, 461n. 1
SEO
discounts, 527
increase in discounts, 522
issuers, 523
market timing hypothesis, 528
Lowenstein, Lovis
PTP transactions
bidder competition in 109
performance after, 303
premiums paid above market price for, 106 table 4.6
tax benefits part of decision, 656
MBO to defend against a hostile offer, 96
management depressing share price, 97
summary of impact strand, 111 table 4.7
LPEQ
and benefits of LPE, 597
description of, 559
M&A merger and acquisition, 122, 161, 386
Macias, Antonio
and MAC claims, 25
private equity
bid failures, 31
future, 16
(p. 739) MacIntosh, Jeffrey
IPO
in Asia, associated with quality of investment, 681
venture capital
delayed exit, 398, 616
firm governance, 75
industry market-to-book variable, 392
Madoff, Bernie, 388
management buyin (MBI), 90 table 4.1, 91
management buyout (MBO), 90 table 4.1, 91
prebuyout insider trading, 97
premiums paid above market price to take a firm PTP, 106 table 4.6
in United Kingdom, 219–242
Manigart, Sophie
private equity club deals and portfolio diversification, 244
syndicates
capital constraints theory, 204
reasons for, 223
venture capital firms
and syndicated investors 160, 212
prefinancing stage, 160
publicly listed, 69–71 table 3.1
syndication study, 201–202 table 7.1
Marais, L.
cumulative average abnormal returns, 105 table 4.5, 107
expropriation, use of, to create value for private equity, 328
PTP transactions
and debt downgradings, 93
bondholder wealth in 94 table 4.2
private equity buyouts
positive abnormal results, 654
summary of research on, around the world, 647–652 table 23.1
summary of impact strand, 111 table 4.7
Marcus, Alfred
private equity
buyout motivations, 277
importance of following PTP firms after the transaction, 110
optionality of the private equity contract, 34
market efficiency, 387, 707
Market Match, 154n. 2
market out clause. See banks
market share
and the Herfindahl-Hirschman Index, 508
as a measure of capital managed per partner, 427
calculating, 225
combined, 225
compared to prices, 223
correlated with number of IPOs, 232
increasing, 687
IPO, 428, 432
negative, 236
regained by private equity, 251
Martynova, Martina
private equity
bid premiums and United Kingdom and Europe, 125n. 5
M & A activity, 122
rebirth of, 2, 51
rise of power of institutions on PE buyout, 251
material adverse change (MAC)
benefits to private equity firm, 20
used to terminate obligations, 25, 27, 35n. 4
McCahery, Joseph A.
club deals and limited monitoring by banks, 246
competition in European internal market, 262
private equity firms, two types of, 245
venture capital firms
agency costs, 188n. 7
structure of, 58
McKinsey & Company, 64
Meckling, William H.
principal/agent theory, 80
private equity
agency
problems, 496, 613, 642
theory, 630
compensation contracts tying performance to pay, 275
corporate governance, 642
reducing agency problems, 275
venture capital firms
agency costs, 188n. 7
debt financing, 162
incentive alignment effect, 448
Megginson, William
Blackstone IPO, 2, 58
club deals, structure of, 246
Fortress Investment Group, 2, 58
IPO
in Asia, a goal of PE firms, 681
private equity-backed, 463n. 2
summary of research, 451–452 table 16.1
return to, 389
venture capitalists acting to reduce initial underpricing, 448
private equity
investors
contractual restraints imposed on managers by, 462
venture capital firms
adding value to target firms, 188n. 3
experience of, 390
institutional investors buying stock in, 68
IPO returns to, 401
Mehran, H.
characteristics of firms to go private, 100
illiquidity of shares as reason to go private, 97
PTP transactions, intent strand, 102–103 table 4.4
Merger Market, 199
Meuleman, Miguel
private equity
buyouts, 300
funds and financial sponsors, 248
(p. 740) club deal and agency conflicts, 244
market, 9
rise in mingling of private equity funds, 252
Metrick, Andrew
hedge funds, performance-based compensation schemata, 503
private equity
and asymmetric information, 614
firms
public understanding of, 57
size of, 60, 61
funds, economics of, 420
transactions, syndicated, 620
venture capitalists'
capital managed per partner, 418
exits, 158
value-added services to investees, 157
Metro-Goldwyn-Mayer, 203
mezzanine
as a debt form, 249,
as a stage of investment, 384n. 9
capital, 592
rate of return, 4
financing, 33,
late-stage turnaround, 1
Mietzner, Mark
Germany
hedge fund targets, positive announcement returns for, 499
institutional investors, 498
publicly listed companies, 10
institutional investors, new, summary of, 500–502 table 18.1
private equity investors as blockholders, positive returns to, 511
sovereign wealth fund
acquiring voting rights
positive excess returns to target firms, 499
mixed results, 499
Moeller, Sara B.
private equity firms winning targets, 470
because of information asymmetry, 469
in United States, 469
results based on firm size, 488
monitoring
agency costs and, 658
and specialized industry focus, 205
angels and, 450–454
buyout impact, 314, 639
club deals and, 246
empire building and, 275
exit timing and, 614
free-rider problem, 93, 643
gains, improvement in, 107, 110, 116
governance and, 156–195
in Australia, 661
in China, 700, 703
in Europe, 300, 301, 303
in Japan, 661
in RLBO companies, 141–147
investors' interest in, 80
lack of, 89, 92
principal/agent theory, 80
postbuyout, 213
postissue, 456
shareholders, 496
trade sales and, 617
venture capital firms and, 455, 456, 458, 463n. 2
Moore, W. T.
cumulative average abnormal returns, 105 table 4.5
duration of private status of LBOs, 120
private equity buyouts
positive abnormal returns, 654
summary of research on, around the world, 647–652 table 23.1
summary of duration strand, 121 table 4.9
moral hazard, 158
as an agency problem, 446, 447, 454, 592
club deals and, 246
mitigated by
convertible securities, 189n. 16
financing decisions, 163
governance systems, 455
principal-agent problems, 455
Morgan Stanley Capital International annual index returns (MSCI), 309
Mulherin, J. Harold
auction theory, 255
bidding auctions
synergetic value of combined consortium members, 256
competition hypothesis, 256, 260
monopsony likelihood in the United States, 261
Muscarella, Chris J.
private equity
buyouts, effects of, 284 table 10.1
divisional buyouts, 110, 114
employees, effects on, 287
profitability
after, 303
before and after, 132
managers' expropriation, 496
summary of process strand, 117 table 4.8
summary of RLBO literature, 133 table 5.1
Myers Industries, 27
Nahata, Raj
private equity firms
exits, 2, 443n. 9
investment duration, 3
reputation easing access to success, 473, 485
Naqi, Sayed Ahmed
private equity in Asia, 668, 669–670 table 24.1
growth capital in, 672
national institutions
private equity investors and, 456–460
NB Private Equity
downturn experience, 569
Neiman Marcus
private equity buyout of, 24
two-tiered termination fee and, 24
Netherlands, The
institutional investors in, 48–49
network density
and price paid for targets, 227
definition of, 223
calculation of, 225, 228, 229, 232, 236
networks
business angels and, 459
syndicate, 219–242
New Zealand. See Asia
Nielsen, Kasper Meisner, 55n. 1
fund-of-funds and direct private equity, 7
investment in high-tech firms, 40
pension fund investment in Denmark, 52, 53
venture capitalists
value-added services to investees, 157
Nikoskelainen, Erkki
private equity buyouts
exit
by IPO yields higher return, 616, 617
by secondary buyout yields lowest return, 618
IPO preferred exit mechanism, 627
strategies, 615
owners more active in operational engineering, 682
returns driven by size of buyout and acquisitions before exit, 335
syndicates
enhancing returns of target firms, 199
non-PE-backed targets, 470–472, 478
announcements for, 482, 484, 492
method of payment, 488
Norway
investor protection in, 653
notification procedure, 253
notion of control, 253, 262
OECD, 188n. 2
Officer, Micha S.
club deals in Asia, 674
private equity firms winning targets
because of insufficient liquidity of private firms, 469, 470, 471, 492
O.M. Scott & Sons Company, 116
Ontario Municipal Employees Retirement Systems, 42
Ontario Teachers Pension Plan (OTPP)
and direct investments, 42
Opler, Tim C.
LBOs
in Asia, abnormal shareholder gains, 676
private equity
buyouts, effects of, 285 table 10.1
employees, effects on, 287
long-run investments, effects on, 291
summary of research on, around the world, 647–652 table 23.1
free cash flow hypothesis, 655
managerial ownership, 275
PTP
decision and financial distress, 101, 656
transactions
intent strand, 102–103 table 4.4
operating profits of, 115
summary of process strand, 117 table 4.8
overconfidence, 65
Ozerturk, Saltuk
venture capital firms
contracting behavior, 187, 188n. 4, 189n. 15
financing
with convertible securities, 164, 189n. 15
with hybrid securities, 163
Pagano, Marco
private equity investment
contract breaches bringing short-run gains, 332
effects on employees, in Europe, 659
exit strategy, choice of, 615, 616
regulation of, international political theory and, 645, 646
Pantheon
secondary markets, selling in, 560
Parallel Petroleum Corporation, 34
Pearson correlation test, 207
PE-backed targets, 470, 483, 484
alternative regression models for, 491
announcement returns, 471, 478, 482, 486
bidders with cash payments, 472, 485, 488, 492
early exit, 486
operational characteristics of, 473
Penn National Gaming, 27
buyout termination agreement, 24
pension funds
as contributors to limited partnerships, 40, 41
“prudent man” rule governing, 495
performance
relative net of fees, 37, 38
Peristiani, S.
characteristics of firms to go private, 100
illiquidity of shares as reason to go private, 97
PTP transactions, intent strand, 102–103 table 4.4
Permira, 62, 203
Pfleiderer, Paul
private equity club deal and agency conflicts, 244
venture capitalists
contracting behavior, 187, 188n. 1
financing with hybrid securities, 162, 189n. 17
syndicates creating advantage in information, 454
value-added services to investees, 157
syndicates
lead firms less reliant on syndicate members, 455
reasons for, 223
(p. 742) Phalippou, Ludovic
LBOs, returns to, 679
“living dead investments”, 614
funds
average equity beta for, 584
evaluating, 618
fees of, 38
poor performance of, 38
return to, 350, 354, 575, 576
summary of risk-modeling approaches, 585 table 21.1
PHH Corp, 27
Pitchbook, 2
portfolio selection
theory, 67–68
Poulsen, Thomas
cumulative average abnormal returns, 105 table 4.5
LBOs
free cash flow hypothesis in, 98, 100, 104, 655
in Asia, abnormal shareholder gains, 676
private equity limits, 9
PTP
premiums paid above market price to take a firm, 106 table 4.6
tax benefits hypothesis, 108
tax liabilities no influence on decision to go private, 655
transactions, intent strand, 102–103 table 4.4
summary of impact strand, 111 table 4.7
PricewaterhouseCoopers, 64
private equity
acquisitions, self-funded, 33
agency problems and, 189n. 8
amounts invested in United States, 4 fig. I.3
analysis of
definition of variables, 308 table 11.1
and public corporations, 131–155
-backed firms, 417–444
fund size, 417–444
limited attention, 417–444
valuation of, 417–444
-backed transactions
bidder-initiated terminations, 17–18 table 1.1
distribution of sample in the period, 477 table 17.1
geographical composition of private target and bidder firms, 475–476 table 17.1
regression results, 489–491 table 17.4
summary of statistics of deal characteristics, 477 table 17.1
buyouts, 271–299, 353 table 13.1
around the world, 639–666, 647 table 23.1
as catalysts of creative destruction, 274
bringing in capital and knowledge, 277–278
description of, 592
descriptive statistics for, 311 table 11.3
distributed to paid capital ratio, statistical significance of, 377–378 table 13.15
effects on employment, productivity, and innovation, 279–286
financial performance after, 302
firm growth rates and, 314–315
geographical breakdown of, 273, fig. 10.2
growth of indicators, percentage of firms registering, 311 table 11.4
holding period, United States, 5 fig. I.5
in different institutional environments, 646–663
in Western European countries, 300–326
introducing uncertainty and new temporary owners, 276–277
IRRs, 359–366
bidders' announcement returns, 483–484 table 17.3
cumulative abnormal returns, 487 fig. 17.1
excess, statistical significance of, 379–380 table 13.16
influence of bubble years on, 362 table 13.5
market timing and
multiregression analyses of, 372 table 13.12
regression analyses of the influence of, 369 table 13.10
relative contribution of to overall value creation, 371 table 13.11
sector comparison of, 360 table 13.3
statistical significance of, 374 table 13.13
regional comparison of, 361 table 13.4
sector comparison of excess, 365 table 13.7
sector comparison of, 368 table 13.9
statistical significance of, 375–376 table 13.14
leverage ratios of, 356 fig. 13.1
number of, 1970–2009, 272, fig. 10.1, 310 table 11.2
paid capital ratio, sector comparison of, 364 table 13.6
performance measures, 312 table 11.5
patenting for, number and percentage of firms, 313 table 11.6, 313 table 11.7
public market equivalent, statistical significance of, 381–382 table 13.17
reducing agency problems, 275–276
contracts, 15–36
and the financial crisis
after, 30–33
during, 24–30
between shareholders and stakeholders, 331
breach of, 331–332
bridge financing and, 22
evolution of, 22
failure of, 16, 27–30
financial risk to buyer, 16
financial risk to target, 16
future of, 16, 19, 33–35
history of, 19–25
limitation on specific performance form of, 28
mezzanine financing for, 33
(p. 743) offering contractual certainty of closing, 33
optionality of, 29
evaluation of
difficulties, 581–587
return, 581–583
exits
by IPO, 616–617
by secondary buyouts, 618
by trade sales, 617
governance
agency theory and, 446
institutional environments, 642- 646
of target firms, 445–468
origins of, 19
definition of, 1, 11n. 1
size of in United States, 5 fig. I.6
type of, 6 fig. I.7
global takeover volume, 15
horizon IRRs, 8 fig. I.11
investments in, 472–474
risk mitigation mechanisms, 189n. 9
unquoted limited partnership funds (LPFs), 549–550, 550–553
characteristics of, 550
comparison with LPEs, 551 table 20.2
investors, 445–468
and competitive environment, 210
and national institutions, 456–459
hierarchy of, 448
informal. See angels
winning private targets
and information asymmetry, 469
and insufficient liquidity sources of private firms, 469
in United Kingdom, 469
in United States, 469
in Western Europe, 469
limits to size and number of transactions, 16, 34
listed, 549–635
comparison to traditional PE, 597–602
cross-sectional PME distribution, 600 table 21.3
mean and median PME, 601 table 21.4
number of funds in sample, 600 table 21.2
PMEs for distinctive vintage years, 601 fig. 21.2
correlation, 586–587, 602–605, 604 table 21.5, 606 table 21.6
direct private capital companies, 594
European, characteristics of, 555–567, 556 table 20.2
capital structure, 560–562
commitment cover, 562 fig. 20.2
corporate structure and governance, 559
descriptive statistics, 557–559, table 20.3
discounts/premiums by company, 565 fig. 20.4
in U. K., 566 fig. 20.5
discount protection, 566
downturn experience, 567–575
case for private equity, 568 table 20.5
performance, 570–575
European PE, 572 table 20.8
LPE, 2007–2010, 573 table 20.9
LPX Europe total return index, 574 fig. 20.7
selling funds at discount, 571 table 20.6
U. S. PE, 572 table 20.7
secondary pricing versus LPE discounts, 569 fig. 20.6
fees, 563–565
structure of, 564 table 20.4
net leverage, 561 fig. 20.1
regulation, taxation, and dividends, 562–563
dividend yields, 563 fig. 20.3
valuation policy, 565–566
risk and return characteristics of, 575–576
performance of LPX50 TR
compared to LPX Buyout TR and LPX Venture TR, 603 fig. 21.3B
compared to MSCI World and Nasdaq Composite, 603 fig. 21.3A
shrinkage estimates, 607 table 21.7
evaluating, 581–587
return, 581–583
risk, 583–586
summary of risk-modeling approaches, 586 table 21.1
exits, summary of
average, median, and cumulative abnormal returns of exit announcement, 625 fig. 22.1
correlation matrix, 620 table 22.2
cumulative abnormal returns of exit announcement, 625 fig. 22.2
descriptive statistics, 624 table 22.4
multivariate analysis, 627–630, 628 table 22.6
overview of, 622–623 table 22.3
robustness check, 629 table 22.7
univariate analysis, 626 table 22.5
variables description, 619 table 22.1
fund managers, 594–595
indices, 587–588
indirect investment companies, 593–594
organizational structures of, 593 fig. 21.1
investment activities in, 595–597 550–555, 579–610, 595–596
limited partnership funds, 550–553
compared to, 551 table 20.1
listed private equity vehicles (LPEs), 549–550, 553–555
categorizing, 556–559
comparison with LPFs, 551 table 20.2
European
characteristics of, 555–556
(p. 744) descriptive statistics of, 557–559 table 20.3
portfolio weight, 607 table 21.7
risk and return, and correlation of, 602–605, 604 table 21.5, 606 table 21.6
characteristics of, 549–578, 581–587, 602–605
measurement of, 550
summary of risk-modeling approaches, 585 table 21.1
markets
competition in, 221–223
growth of, 219–220
syndication networks, 223
valuation of, 221–223, 589–590
need for credit, 15
performance, 347–386
in Europe, 572 table 20.8
in United States, 572 table 20.7
public market equivalent, 597–598
cross-sectional distribution, 600 table 21.3
for distinctive vintage years over sample period, 601 fig. 21.2
mean and median for each group, 601 table 21.4
sector comparison of, 367 table 13.8
“quick flips”, 272
reputation of acquirer, 33, 34
strategic deal model, 34
structure of, 20 fig. 1.1, 25 fig. 1.3, 32, 34n. 1, 178
insurance hypothesis, 31, 32
option hypothesis, 31, 32
reputation hypothesis, 32
signaling hypothesis, 31
See also targets
reputational forces and contract termination, 25, 26, 27
reverse termination fee, 25 fig. 1.3
and staining a firm's reputation, 26, 27
becoming the norm, 24
paid to SunGard, 23
role of, in private acquisitions, 469–494
traditional compared to listed, 597–602
value creation, 347–386
decomposing, 366–373
framework for, 356–359
versus public equity for entrepreneurial ventures, 521–546
private equity firms, 479–481 table 17.2
buyout firm, 448
specialized knowledge needed by management team, 63
summary statistics for buyout firms, 142 table 5.7
decision making in
going with “gut feeling”, 65
of investments, 64
process of, 65
exit behavior of, 91, 188n. 5
financing decisions in, 156–196, 188n. 4
governance, 156–196, 445–468
IPO firms, 445–468
summary of research, 451–452 table 16.1
internal structure of, 57–86
investment in, 38 fig. 2.1, 39 table 2.1
comparison of type of investment, 39
co-investments with specialized investors, 38
direct investment by institutional investors, 37–56
inappropriateness of, 40
indirect investment through fund of funds, 38
indirect investment through limited partnerships, 38
leverage of, 64 fig. 3.3
limited partnership (LP) model of, 57–58, 590–591
listed
direct, 594
indirect, 593–594, 594 fig. 21.1
nonfinancial assistance from, 65–66
professionals employed by, 62
referred to as conglomerates, 203
size of, 57–86, 59 fig. 3.1, 62
bottleneck effect, 65
compared to venture capital firms, 60
effecting investment decisions, 65–66
syndication of. See venture capital, syndicates
transfer wealth from bondholders to stockholders, 93–95
private equity funds, 7 fig. I.10
capital overhang, 4 fig. I.4
crises resisted, 341n. 1
fees of, 37
fund-of-funds managers, value provided by, 386–416
governance of target firms, 643
free-rider problem, solving, 643
in United States, 3 fig. I.2
number closed, 3 fig I.1
investing in publicly held companies, 2, 37
compared to direct investment, 37, 38
limited attention, 427–437, 433–434 table 15.5, 435–436 table 15.6, 437–441, 438–439 table 15.7, 440–441 table 15.8
listed
sample, number of funds in, 600 table 21.2
management of
listed, 594–595
agency problems in, 39
motivation of, 387–388
performance of, 437–441, 438–439 table 15.7
exit, 440–441 table 15.8
poor returns of, 37, 38
regression analysis, 428–431, 429–430 table 15.4
robustness checks, 431–437
alternative models, 431–432
size of, 59 fig. 3.1, 427–437, 433–434 table 15.5, 435–436 table 15.6, 437–441, 438–439 table 15.7, 440–441 table 15.8
summary of
observations, number of, by year, 425 table 15.2
valuations, pre-money, 425–426 table 15.3
variables, definition of, 423–424 table 15.1
value, creating or destroying, 329 table 12.1
Private Equity International, 479
Private Equity Monitor, 167, 168, 171, 349
private investor. See venture capital, investors
private targets, 469–494
productivity, 57, 289–290
buyouts and, 272, 275, 276, 277, 293,
bring improvements in, 278, 304, 305
employee ownership plans and, 331
ex-post performance, 314
firm growth and, 307
in Asia, 679, 687
in Western Europe, 301–302
nonfinancial measures of, 302
performance measures, 312 table 11.5
private equity and, 279–286, table 10.1
“quick flips” and, 272
reducing agency problems and, 274,
professional service firm/industry, 57, 64, 82n. 5
Providence Equity Partners
buyout of Clear Channel Communications, 29
buyout of Metro-Goldwyn-Mayer, 203
lawsuit from Wachovia Corp., 29
Prowse, Stephen
corporate governance and differences in national institutions, 456, 458
venture capitalists
agency risk and monitoring mechanisms, 450, 453
“prudent man” rule. See pension funds
public-to-private transactions. See leveraged buyout
publicly listed VC, 75, 79, 80, 81
Puri, Manju
private equity
exits and signaling theory, 615
financing the growth of a company, 495
venture capital firms
governance over target firms, 161
value-added services to investees, 157, 390
QSuper. See Australia
quick flips
RLBOs, 144, 147, 154, 272, 276, 277
R&D
alliances, 115
and patenting, 290, 305
buyouts and, 291, 293, 305
distress costs and, 656
in Asian firms, 676
incentives, 323n. 12
investment strategies and, 301, 302, 302
“shareholder activism” and, 496
spending on, 276, 289
Rausing family
and Royal Scandinavia buyout, 334
Ravenscraft, David J.
private equity
buyouts, effects of, 284 table 10.1
innovative efforts, effects on, 302, 305
long-run investments, effects on, 291
R & D, effects on, 301
performance gains for LBOs and MBOs, 115
summary of process strand, 118 table 4.8
real effects
of private equity, 271–344
Real Estate Investment Trusts (REITs), 134, 474
Reddy Ice Holding, 27
Refco, 132, 154n. 2
Renneboog, Luc
bid premiums in United Kingdom and Europe, 125n. 5
cumulative average abnormal returns (CAAR), 105 table 4.5, 107
expropriation, use of, to create value for private equity, 328
LBOs
in Asia, abnormal shareholder gains, 676
leveraged buyouts, 8
M & A activity, 122
private equity transactions
buyouts
free cash flow hypothesis, 656
positive abnormal returns, 654
retained from first to second wave, 655
summary of research on, around the world, 647–652 table 23.1
debt-to-equity ratio of, 246
incentive realignment hypothesis in U. K., 655
public-to-private transactions, 8
premiums paid above market price to take a firm PTP, 106, table 4.6
shareholder wealth effects in PTP, 104
summary of impact strand, 112 table 4.7
rebirth of, 251
rise of power of institutions on PE buyout, 251
tax benefits hypothesis, 108
in U.K., 656
transaction costs hypothesis, 108
undervaluation hypothesis, 109
weak stock performance of target firms, 657
Repullo, Rafael
private equity investments
exits and signaling theory, 615
venture capital firms
contracting behavior, 187, 188n. 4
financing with hybrid securities, 163, 189n. 17
reputation
and bidders' returns, 471, 472, 473, 479, 483 table 17.3, 488
and pre-money valuation, 428
controlling for, 432m 437
exit and, 485, 486
hypothesis, 32, 33, 34
of buyout group, 143
of private equity firms, 16, 26, 244, 383, 418, 419
scarcity of reputable, 421
of start-ups, 77
(p. 746) of underwriters, 139
of VCs, 450, 455
Reputation Year, 618
return to IPO, 389, 401
by firm, 402–403 table 14.7
by firm type, 404 fig. 14.1
reverse leveraged buyouts (RLBOs), 90 table 4.1, 91, 131
annual distribution of, 135 table 5.2
financial performance of, 147–153
IPO underpricing and other characteristics of, 139 table 5.5
larger than other IPOs, 134
monitoring of private equity in, 141–147
operating efficiency of, 144
operating performance of, 144, 145 table 5.9
ownership structure of RLBOs and sponsors' post-IPO share, 143 table 5.8
performance of
calendar-time market-adjusted, 151–153 table 5.13
for subsamples, 149–150 table 5.12
quick flip of, 144, 146 table 5.10
restructuring of, 144
stock performance, event time, 148 table 5.11
summary of the literature, 133
summary statistics for buyout firms, 142 table 5.7
summary statistics for IPOs and, 136–137 table 5.3
summary statistics for, 138 table 5.4
underpricing adjusted by other IPOs with propensity score matching, 141 table 5.6
revolver facilities, 247
Richardson, Matthew
buyout funds, cash flow data of, 349
LBOs, returns to, 679
private equity
funds
portfolio companies of, 584
summary of risk-modeling approaches, 585 table 21.1
market
competition and, 222, 238
demand shifts affecting value, 221
effect of competition and industry concentration, 220
return to, 575
venture capital
diseconomy, 442
firms
amount of capital raised and effect on valuation of companies, 220
nternal rate of return, 80
funds
size and performance, 420
Ritter, Jay
asymmetric information, 447
IPOs
postissue performance, 446
underpricing, trading window, 461n. 1
financial markets
competition in investment banking, 221, 239
IPOs, return to, 389
LBOs, reverse, 115
market timing hypothesis, 528
private equity investments
exit strategy, choice of, 616
SEO issuers, 523
venture capitalists
“corruption hypothesis”, 449
RJR Nabisco
acquisition of, 22
Robbie, Ken
decision-making in private equity firms, 65
MBIs as hostile transactions, 91
summary of process strand, 118 table 4.8
venture capital
captive compared to independent, 458
Rock, Edward
mutual funds as investors, 498
pension funds as investors, 498
hedge funds, low conflicts of interest, 503
portfolio company, tax benefits and, 517n. 4
Royal Copenhagen, 333
Royal Scandinavia
buyout of, 328, 333–339
deconstruction of the conglomerate, 335 table 12.2
key figures for, 338 table 12.4
management in, 337 table 12.3
Rozelle, Scott
LBOs
Chinese privatizations, 679, 687
in China, 689n. 4
returns to, in Asia, 677–678 table 24.5
markets
in Asia, 672
Ruback, R. S.
private equity firms
relative price measure of, 224–225, 228
valuation of, 221–222
Russell 3000 public markets index, 5, 7 fig. I.10
Safeway Stores, 116
Sahlman, William A.
private equity
agency costs, reducing, 614
firms
governance mechanisms to reduce agency costs nonexistent, 612
nonfinancial assistance from, 66
partners' compensation, 65
investors
access to corporate information, 632n. 5
contractual restraints imposed on managers by, 462
venture capitalists
exits, 158
financing with convertible securities, 164
(p. 747) governance over target firms, 161, 187
postfinancing state, 161
risks, 158
screening criteria, 175
value-added services to investees, 157
syndicated investments, riskier than stand-alone ventures, 454
Sapienza, Harry J.
venture capital
governance over target firms, 161
United States market different from European market, 456, 458
value-added services to investees, 157
Sarbanes-Oxley legislation (2002), 4
SBIC
as venture capital company, 392
Scellato, Guiseppe
buyouts
Italian data, 322n. 7
profitability after, 303, 304, 308
R & D, effects on, 301
Schäfer, Dorothea
private equity
uncertainty and job security, 276
venture capital firms
agency problems, 189n. 8
financing behaviors of, 88n. 4
risk mitigation mechanisms, 189n. 9
security choice, 189n. 13
Schatt, Alain
buyouts
French firms and, 659
profitability after, 302
summary of research on, around the world, 647–652 table 23.1
Schertler, Andrea
syndicates
complementary resource theory, 205
paved exit route theory, 206
private equity professionals, value of, 63
venture capital firms
contracting behavior, 189n. 11
convertible securities, use of, 189n. 16
risk mitigation mechanisms, 189n. 9
Schmidt, Daniel
banks as investors, 498
private equity transactions, 10
exit strategy for, 612, 616
venture capital firms
agency problems, 189n. 8
contracting behavior, 187
financing
with convertible securities, 164, 178
with hybrid securities, 163
Schoar, Antoinette
LBOs
returns to, 679
private equity
agency costs, reducing, 614
buyouts
cash flow data on, 349, 350
legislative enactments and, 309
summary of research on, around the world, 647–652 table 23.1
diseconomy of scale, 437
firms, valuation of, 222, 432
funds, fees of, 38
investor legal protection, 653
legal environment for, 156
moral hazard problem, double-sided, 159
performance related to firm size, 419
public market equivalent, 597
returns to, 575, 654
venture capital
corporate governance and legal institutions, 458
diseconomy, 442
firms
convertible securities mitigating a moral hazard problem, 189n. 16
financing practices of
in developing countries, 164
funds
size and performance, 420, 421, 422, 427
importance of track record, 79
Schultz, P.
financial markets
competition in, 221, 239
role of interfirm networks in, 221
Schweizer, Denis
delayed exit, 398
Germany
hedge fund targets, positive announcement returns for, 499
institutional investors, 498
private equity investors as blockholders, positive returns to, 511
publicly listed companies, 10
institutional investors, new, summary of, 500–502, table 18.1
Schwienbacher, Armin
private equity investment
duration of, 3
exit
by secondary buyout yields lowest return, 618
IPO as, 617
strategy for, 612
Scottish & Newcastle, 203
SDC, Corporate New Issues database, 134, 392
specifics gathered, 392
Mergers and Acquisitions database, 134
secondary initial public offering, (SIPO), 91, 97, 119
Securities and Exchange Commission, 388
securitization
market, 671
of syndicated loans, 248
transactions, 245
senior lenders, 249
(p. 748) Servaes, H.
entrenchment effects, 125
private equity buyouts
free cash flow hypothesis, 655
summary of research on, around the world, 647–652 table 23.1
Shane, Scott
angel investors
financing decisions similar to venture capital decisions, 460
having longer time horizon, 453
ties to entrepreneurs causing obligations, 453
asymmetric information mitigated in venture capital contracts, 448
Sharoff Food Service Inc., 54
Shleifer, Andrei
demand affecting price, 222
hostile takeovers, 95
private equity
agency problems, 496
mitigated by
aligning interests between managers and shareholders, 499
monitoring activities of blockholders, 499, 643
agency-theoretical background, 496
Coase theorem and efficiency loss, 332
contracts between shareholders and stakeholders, 321
expropriation, use of, to create value for, 328
monitoring managers, 275
ownership change and stakeholder contracts, 276
wealth transfer hypothesis, 101
Siegel, Donald S.
private equity
buyouts, effects of, 284 table 10.1
employees, effects on, 287, 289
long-run investments, effects on, 290
productivity, effects on, 289, 290, 302, 303, 304