Divisional Buyouts by Private Equity and the Market for Divested Assets

We study the role and performance of private equity (PE) in corporate asset sales. Corporate sellers obtain significantly positive excess returns in PE deals, gains in wealth significantly greater than for intercorporate asset sales. Based on exit valuations for 98% of PE deals, we find gains in enterprise value in buyouts are significantly greater than for benchmark firms. Corporate seller excess returns are positively correlated with subsequent gains in asset enterprise value. A parsimonious auction model suggests that only restructuring capabilities of PE (not acquisition of undervalued assets) can explain the pattern of the gains generated in these PE deals

Asset sales and the role of buyers: strategic buyers versus private equity

We model bidding behavior and the interaction of private equity and strategic buyers in corporate asset sales. Private equity bidding and in turn seller gains, and type and time of exit, are determined by private equity's ability to enhance the asset's value. Our empirical results show excess returns to sellers are greater for sales to private equity than strategic buyers. Seller gains in private equity deals are related to subsequent increases in asset values and type and time of exit. Value increases during private equity ownership significantly exceed those of benchmark firms

Asset sales and the role of buyers: strategic buyers versus private equity

We model bidding behavior and the interaction of private equity and strategic buyers in corporate asset sales. Private equity bidding and in turn seller gains, and type and time of exit, are determined by private equity's ability to enhance the asset's value. Our empirical results show excess returns to sellers are greater for sales to private equity than strategic buyers. Seller gains in private equity deals are related to subsequent increases in asset values and type and time of exit. Value increases during private equity ownership significantly exceed those of benchmark firms

Ownership Concentration, Corporate Control Activity, and Firm Value: Evidence from the Death of Inside Blockholders.

The authors analyze how ownership concentration affects firm value and control of public companies by examining effects of deaths of inside blockholders. They find shareholder wealth increases, ownership concentration falls, and extensive corporate control activity ensues. Share price responses are related to the deceased's equity stake. Control group holdings fall for two-thirds of the firms due to either the estate's dispersal or inheritors selling stock. A majority of firms become targets of control bids: three-quarters of bids are successful; one-third are hostile. The authors' evidence is broadly consistent with Stulz's (1988) model of the relationship between ownership concentration and firm value. Copyright 1993 by American Finance Association.

The Implications of Equity Issuance Decisions within a Parent-Subsidiary Governance Structure.

The authors provide evidence about the motivation for a parent-subsidiary governance structure by analyzing valuation effects of seasoned equity offerings by publicly traded affiliated units. Their results support Vikram Nanda's (1991) theoretical model which predicts equity offerings convey differential information about subsidiary and parent value. Subsidiary equity issuance has negative valuation effects on issuing subsidiaries and positive effects on parents, while parent equity issuance reduces issuing parent wealth and increases subsidiary wealth. The authors' evidence suggests that a parent-subsidiary organizational structure enhances corporate financing flexibility and mitigates underinvestment problems identified by Stewart Myers and Nicholas Majluf (1984). There is no evidence of subsidiary wealth expropriation. Copyright 1997 by American Finance Association.

Post-Initial-Public-Offering Takeovers of Firms Controlled by Private Equity: Is There Evidence of a Liquidity Conflict?

We analyze third-party takeovers of listed firms in which private-equity sponsors retained substantial post-initial-public-offering block holdings. Targets obtain large gains in shareholder wealth that are shared pro rata between sponsors and other shareholders, even though Delaware law allows differential premiums for block holders. Targets’ gains are positively related to the size of sponsors’ holdings and negatively affected by having a special committee that excludes private-equity directors. After Delaware courts evinced concern about a liquidity conflict associated with large block holders, private-equity-controlled target firms became more sensitive to the risk of litigation, as indicated by an increase in the likelihood of a special committee and a go-shop clause as sponsors’ block size increases. Our evidence is not consistent with plaintiffs’ arguments that even when equal compensation is paid in third-party takeovers, private equity engenders a liquidity conflict with other shareholders that calls for heightened legal scrutiny