Industry Concentration, Syndication Networks and Competition in the UK Private Equity Market for Management Buy-Outs
34 Pages Posted: 31 Jan 2007
Date Written: December 2006
A largely neglected question in the literature on private equity investing is how the competitive environment influences the activities of private equity firms. In this study, we examine the impact of market concentration and interfirm networking through syndication on the price private equity firms pay to acquire investment targets. As such, we provide insights on the sources of returns in the private equity market. We test our hypotheses by studying the price private equity firms pay to acquire buyout targets using a unique hand-collected dataset of UK buyout transactions in the period 1993 to 2002. Our results show that lower levels of market concentration in the market for private equity increase the price private equity investors pay to acquire target firms. Our results did not indicate a consistent effect from the extent of interfirm networking through syndication. Implications for theory and practice are suggested.
Keywords: private equity, buyouts, valuation, competition, syndication
JEL Classification: G24, L13, L14, L84
Suggested Citation: Suggested Citation