Divisional Buyouts by Private Equity and the Market for Divested Assets

Hege, Ulrich; Lovo, Stefano; Slovin, Myron B.; Sushka, Marie E.

doi:10.2139/ssrn.1787465

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Divisional Buyouts by Private Equity and the Market for Divested Assets

45 Pages Posted: 22 Mar 2011 Last revised: 27 Sep 2018

See all articles by Ulrich Hege

Ulrich Hege

Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Marie E. Sushka

Arizona State University

Date Written: July 11, 2018

Abstract

We study the role and performance of private equity (PE) in corporate asset sales. Corporate sellers obtain significantly positive excess returns in PE deals, gains in wealth significantly greater than for intercorporate asset sales. Based on exit valuations for 98% of PE deals, we find gains in enterprise value in buyouts are significantly greater than for benchmark firms. Corporate seller excess returns are positively correlated with subsequent gains in asset enterprise value. A parsimonious auction model suggests that only restructuring capabilities of PE (not acquisition of undervalued assets) can explain the pattern of the gains generated in these PE deals.

Keywords: Divisional buyouts, asset sales, private equity, restructuring, corporate auctions

JEL Classification: G32, G34

Suggested Citation: Suggested Citation

Hege, Ulrich and Lovo, Stefano and Slovin, Myron B. and Sushka, Marie E., Divisional Buyouts by Private Equity and the Market for Divested Assets (July 11, 2018). Available at SSRN: https://ssrn.com/abstract=1787465 or http://dx.doi.org/10.2139/ssrn.1787465