The Impact of Competition on the Selection and Valuation of Deals by Private Equity Firms
Frontiers of Entrepreneurship Research, 2006
13 Pages Posted: 11 Feb 2009 Last revised: 28 May 2009
Date Written: February 2, 2009
An important but largely neglected question in the literature on private equity investing is how the competitive environment shapes the behavior of private equity firms. In this study, we first explore whether competition has an impact on the role of previous industry knowledge for the generation of investment opportunities. Second, we study the impact of competition on the valuation of investment targets. Our hypotheses are tested on a unique hand-collected dataset of the UK buyout market. Using different measures of competition, our results show that increased competition has two opposing effects on the role of previous industry knowledge for the selection of investment opportunities. Further, increased competition leads to higher valuations of target firms.
JEL Classification: M13
Suggested Citation: Suggested Citation