Research
Working Papers
[1] Undervaluation Induced LBOs with Aneel Keswani, Per Strömberg, and Francisco Urzúa I.
Abstract: This paper shows that market (mis)valuations are a driver of private equity activity. Using mutual fund fire sales as a source of target undervaluation, we show that both public-to-private and private-to-private deals are more common following such fire sales. Since our fire-sale measure is unrelated to firm fundamentals, we use it as an instrument to provide causal evidence on the effects of private equity ownership on post-buyout performance for a sample of European LBOs.
Draft available upon request.
[2] The Consequences of Private Equity Investments for Industry Competition with Per Strömberg
Abstract: It has been documented that the competitiveness of industries has decreased over the past years. We ask whether private equity firms actively contribute to this reduction in competition through consolidation. It is not clear whether relation should be positive, since private equity firms may also increase competition through divestitures or by creating larger competitive players in industries in which only a few players are dominant. We find evidence that private equity investments is related to a marginal increase in consolidation, but that this increase is not resulting in higher mark-ups. We compare these results to the consolidation effects from acquisitions by non-PE-owned entities and find that the same does not hold, since these acquisitions do seem to increase mark-ups. The paper makes an novel contribution by exploring the dynamics between private equity investments and industry competitiveness.
Draft available upon request.
[3] Private Equity in Daycare with Dong Xu
Abstract: This paper examines whether PE ownership affects the market competitiveness and quality of the daycare market in the Netherlands. We document a decrease in competition, alongside an increase in the market share of private equity. We find that daycares owned by private equity charge higher price and increase their prices more when facing an exogenous increase in allowance to parents. PE ownership is positively associated with administrative quality improvements but negatively associated with labour-related improvements. They perform better when regulation tightened. Our results suggest that PE ownership strongly alters daycare operations and contributes to important changes in the daycare market.
Draft available upon request.
[4] How Does Private Equity Ownership Affect Acquisition Performance?
Abstract: I study whether private equity (PE) ownership affects the level of realized synergies in strategic acquisitions. The share of acquisitions conducted by PE-owned portfolio companies in the M&A market has more than doubled over the last fifteen years. I find that these acquisitions by PE-owned companies display higher growth synergies than acquisitions by non-PE owned companies. Evidence is consistent with the notion that PE ownership brings acquisition knowledge -- which transfers to the PE-owned company and is partially retained at the PE-owned company when the PE firm exits. These findings indicate that PE ownership is an alternative route for obtaining acquisition knowledge, which stimulates growth synergies.
[5] Private Equity as Strategic Buyers with Han T.J. Smit and Vadym Volosovych
Abstract: We provide evidence of changes in the private equity (PE) business model from the traditional PE engineering toward focus on growth using the buy-and-build strategies as a setting. In these strategies, a PE firm buys a company and builds on that "platform" through serial "add-on" acquisitions. Our novel decomposition methodology compares the combined entities instead of individual firms, and uses artificial replicating strategies as controls. While the traditional engineering practices remain important for growth and efficiency, we demonstrate a new channel of operational improvements, based on synergies between companies.
[6] A Platform Theory for Serial Acquisitions: Evidence from Private Equity with Han T.J. Smit
Abstract: We develop theory in which platform value is the driving motive for a serial acquisition strategy. The defining characteristic of the platform at the initiation of the strategy is that it generates future investment opportunities in a new market, sector or geography and thereby changes the strategic position of the investor. Following real options theory, the ability of the platform to yield anticipated growth option value from future deals depends on industry and company conditions. We use serial acquisition strategies in private equity to empirically test the platform explanation, since this setting excludes alternative explanations for serial deals. The empirical results support the theory that platform value is an important new explanation for serial acquisitions.