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Private Equity Buyouts and Strategic Acquisitions: An Analysis of Capital Investment and the Timing of Takeovers in the United States

By Anthony Melita   

This paper investigates how motivational differences between agents who execute private equity buyouts and those who execute strategic (corporate) acquisitions may influence the timing of capital investment via takeovers. This paper synthesizes prominent merger theories to inform macroeconomic variables that may drive acquisitions. I find a significant negative expected effect of volatility on capital investment via takeover for each buyer type, a negative expected effect from valuation multiples on capital investment from PE buyouts, and a positive expected effect from debt capacity (EBITDA-CAPEX) on capital investment from PE buyouts.

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Advisors: Professor Grace Kim | JEL Codes: G3, G34, G29

Determining the Drivers of Acquisition Premiums in Leveraged Buyouts

By Peter Noonan   

This thesis analyzes factors that determine acquisition premiums paid by private equity firms in public to private leveraged buyouts. Building off of established literature that models the acquisition premiums paid in corporate mergers and acquisitions (M&A), this paper considers factors that influence a private equity firm’s willingness to pay (referred to as reservation price) and the bargaining power dynamic between a target company and acquirer in leveraged buyouts. Specifically, multivariable regression analysis is used to quantify the impact of a target company’s trading multiple, profitability, stock price as a percentage of its annual high, and number of competitors, a private equity firm’s deal approach and payment method, and the financial market’s 10-year US Treasury yield and high-yield interest rates at the time a transaction was announced. A sample of 320 public to private leveraged buyout transactions completed from 2000 to 2020 is constructed to perform this paper’s regression analysis. Using 2008 as an inflection point, this thesis then applies the same regression model to the subperiods from 2000–2008 and from 2009–2020 to examine how these drivers have changed as a result of industry trends—increased competition, low interest rates, and new value creation investment strategies—as well as the 2008 financial crisis and US presidential election—two crucial events that caused tremendous change in the financial system and intense scrutiny of the private equity industry. From the same original transaction screen, a second sample of 659 transactions is used to perform a difference of acquisition premium means t-test to analyze how the absolute magnitude of leverage buyout acquisition premiums have changed across these two subperiods. The second sample consists of more transactions due the t-tests less data-demanding nature as a result of its fewer variables. Results of this paper’s baseline model suggest that acquisition premiums are driven by a target company’s…

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Advisors: Professor Ronald Leven, Professor Michelle Connolly | JEL Codes: G3, G11, G34

The Impact of Post-IPO Private Equity Ownership on Long-Term Company Performance

By Maria Suhail and Cipriano Echavarría

This thesis contributes to existing knowledge of private equity (PE) by analyzing the
impact of PE ownership post-IPO upon the long-term performance of companies. It considers whether companies perform better when PE funds maintain their ownership stakes post-IPO and whether this performance is also impacted by the degree of ownership that is maintained after IPO. This study uses stock performance (measured by cumulative excess stock returns) as a proxy for long-run company performance. The paper constructs and analyzes a sample of 487 companies that underwent an IPO between 2004 and 2012 to determine the implications of the maintenance and level of PE ownership by analyzing the performance of these companies for six years post-IPO. Results suggest that PE ownership post-IPO positively impacts long-term stock performance of companies. Duration and degree of PE ownership post-IPO are also important determinants of long-run performance likely due to the positive signal that continued PE ownership sends to outside investors about the quality of the company, the information asymmetry that exists between public and private markets and that PE firms are experienced managers that add value to companies.

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Advisors: Professor David Robinson, Professor Michelle Connolly | JEL Codes: G11, G14, G24


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