Sources of Value Gains in Minority Equity Investments by Private Equity Funds: Evidence from Block Share Acquisitions
60 Pages Posted: 19 Sep 2012 Last revised: 23 Mar 2017
Date Written: September 19, 2012
Using block share acquisitions made by private equity (PE) funds, we examine the sources of value gains in PE minority equity investments. We find that the targets in PE acquisitions, particularly poorly performing targets, targets with high R&D intensity, and targets whose boards have PE-appointed directors, experience both higher announcement returns and better post-acquisition operating performance than do targets in non-PE acquisitions. The value creation is also more pronounced when PE-appointed directors have experience in the target’s industry. These findings suggest that the governance and operational engineering that PE acquirers apply to their targets constitutes important sources of value creation.
Keywords: Private equity; Minority equity investment; Governance engineering; Operational engineering; Board of director; Monitoring and advisory roles
JEL Classification: G2, G3, G34
Suggested Citation: Suggested Citation