Sources of value gains in minority equity investments by private equity funds : evidence from block share acquisitions

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 compared with non-PE acquirers, PE acquirers are more likely to place representatives with finance experience or those with experience in the target...

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Bibliographic Details
Main Authors: Chen, Guojun, Kang, Jun-Koo, Kim, Jin-Mo, Na, Hyun Seung
Other Authors: Nanyang Business School
Format: Article
Language:English
Published: 2014
Subjects:
Online Access:https://hdl.handle.net/10356/103375
http://hdl.handle.net/10220/24450
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Institution: Nanyang Technological University
Language: English
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Summary: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 compared with non-PE acquirers, PE acquirers are more likely to place representatives with finance experience or those with experience in the target's industry on the target's board when the need for target oversight and/or advice is higher. The targets in PE acquisitions, particularly poorly performing targets, targets with high R&D intensity, and targets with PE-appointed directors who have experience in the target's industry, realize both higher announcement returns and better post-acquisition operating performance than do targets in non-PE acquisitions. These findings suggest that the governance and operational engineering that PE acquirers apply to their targets constitutes important sources of value creation in PE minority equity investments.