Combining Banking with Private Equity Investing
Review of Financial Studies, 26 (9), 2137-2173, 2013
47 Pages Posted: 18 Mar 2010 Last revised: 15 Feb 2018
Date Written: April 16, 2012
Bank-affiliated private equity (PE) groups account for 30% of all PE investments. These affiliated groups’ market share is highest during peaks of the PE market, as is the fraction of transactions where the parent bank leads the loan syndicate (parent-financed deals). Bank-affiliated deals are similar in characteristics and financing to stand-alone deals, but have worse outcomes if consummated during the peaks of the credit market. Parent-financed deals enjoy significantly better financing terms than standalone deals, but do not exhibit better performance. The parent-financing advantage in loan terms is concentrated during credit market peaks when banks tend to syndicate more of the loans to external loan investors, and is not explained by the banks’ previous relationships with the targets, the PE groups’ reputations, or the banks’ prominence in structured financing markets. Banks’ involvement in private equity investments provides significant cross-selling opportunities. Collectively, this evidence is consistent with banks’ taking advantage of favorable credit-market conditions.
Keywords: Private equity, LBO, Banks, Bank regulation
JEL Classification: G21, G23, G24, G28
Suggested Citation: Suggested Citation