What is Different About Private Equity-Backed Acquirers?

This paper investigates whether private equity (PE)-backed acquirers have a “parenting advantage” in the mergers & acquisitions (M&A) market. We employ a sample of 788 PE-backed firms and a carefully matched control group of 6,652 non-PE-backed peers, for which we observe the entire acquisition history over a 19-year time span. Difference-in-differences estimates suggest that PE backing induces a sizeable but short-lived boost to acquisition activity, while the type and complexity of acquisitions are similar to those of non-PE-backed peers. These results are consistent with the idea that PE backing enhances execution and speed in the M&A market. We find that portfolio firms benefit from this boost through improved valuations and margins. The extent to which this is true, however, depends on the institutional setting of the PE owner. Our results indicate that add-on acquisitions are detrimental if PE owners are late buyers or suffer from limited attention problems.

Keywords: Private Equity; Leveraged Buyout; M&A; Buy-and-Build; Add-on Acquisition

JEL Classification: G23, G24; G32, G34

Suggested Citation: Suggested Citation

Hammer, Benjamin and Hinrichs, Heiko and Schweizer, Denis, What is Different About Private Equity-Backed Acquirers? (February 16, 2021). Review of Financial Economics, Vol. 40, Issue 2, April 2022, Pages 117-149, Available at SSRN: https://ssrn.com/abstract=2832444 or http://dx.doi.org/10.2139/ssrn.2832444