When Do Managers Seek Private Equity Backing in Public-to-Private Transactions?

33 Pages Posted: 4 Mar 2007 Last revised: 23 Dec 2019

See all articles by Jana P. Fidrmuc

Jana P. Fidrmuc

Warwick Business School - Finance Group

Peter Roosenboom

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Dick J. C. van Dijk

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute; ERIM

Multiple version iconThere are 3 versions of this paper

Date Written: February 1, 2007

Abstract

Over the last decade, the going private market has experienced a considerable boom in size and also has become more interesting for private equity investors that are looking to partner with incumbent management. This offers managers the choice to take the firm private themselves in a traditional management buyout or to seek private equity backing. We propose that managers decide for a management buyout without any involvement of private equity in case they are less financially constrained: when their firms are undervalued, have high cash levels, are smaller and less financially visible, and the managers own a large toehold. In contrast, managers invite participation of private equity investors when they cannot complete the deal themselves: in firms that are larger, have less cash and managers own a smaller fraction of the firm. Our analysis on a sample of UK public-to-private transactions completed over the period 1997-2003 provides results that are in line with these predictions.

Keywords: Going Private Transactions, Corporate Governance, Private Equity

JEL Classification: G32, G34

Suggested Citation

Fidrmuc, Jana P. and Roosenboom, Peter and van Dijk, Dick J.C., When Do Managers Seek Private Equity Backing in Public-to-Private Transactions? (February 1, 2007). WBS Finance Group Research Paper No. 75, Available at SSRN: https://ssrn.com/abstract=968101 or http://dx.doi.org/10.2139/ssrn.968101

Jana P. Fidrmuc (Contact Author)

Warwick Business School - Finance Group ( email )

Warwick Business School
Coventry CV4 7AL
United Kingdom

Peter Roosenboom

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T09-56
3000 DR Rotterdam
Netherlands
+31 10 40 82255 (Phone)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Dick J.C. Van Dijk

Erasmus University Rotterdam - Erasmus School of Economics - Econometric Institute

P.O. Box 1738
3000 DR Rotterdam
Netherlands

ERIM ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1263 (Phone)
+31 10 4089162 (Fax)

HOME PAGE: http://people.few.eur.nl/djvandijk

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
396
Abstract Views
2,821
rank
32,039
PlumX Metrics