When Do Managers Seek Private Equity Backing in Public-to-Private Transactions?

Abstract

Managers have the choice to take thefirm private themselves in a management buy-out or to seek private equity backing. We argue that managers seek private equity backing in case they are more constrained to finance the deal themselves. We confirm the hypothesis using a sample of UK public-to-private transactions over the period 1997-2003. A post going private performance analysis reveals that both management buyouts and private equity backed deals outperform their industry peers. However, private equity backed deals outperform their peers already before the deal takes place whereas management buyouts improve performance afterwards. This suggests a passive role for private equity firms in going private transactions.

Keywords: Public-to-Private Transactions, Private Equity, Corporate Governance

JEL Classification: G32, G34