Private equity is a source of finance and a governance device characterised by active monitoring through sponsors that intervene in targets’ corporate governance. As sponsors are skilled and motivated acquirors, we investigated whether corporate governance mechanisms mitigate leveraged targets’ risk of financial distress differently compared to non-acquired companies through the lenses of agency theory and resource-based theories. We found that targets and non-acquired companies are not significantly different in terms of corporate governance features, but sponsors are skilled enough to choose corporate governance members to mitigate risk more, especially when boards are smaller, have busier industry expert directors, and mandate execution to more managers. These results can be useful to targets, targets’ investors and lenders, and policymakers.

Syndication allows two or more private equity sponsors to takeover targets that would have been overlooked due to lacking financial resources, risk capacity and/or skills (especially highly specialized sponsors may consider syndication). While financial resources mostly belong to size, skills come from sponsor’s experience: beyond its amount, different types of skills i.e. specialization profiles – come from different types of experience. Literature about private equity syndication is mostly devoted to its determinants, while the performance implications of syndication compared to stand-alone private equity are under-researched. This paper investigates the effect of different types of sponsors’ previous experience on the target’s performance (ROA) and whether this relation changes in syndicated versus stand-alone deals

We study whether Private Equity acquirers (sponsors) are long-term oriented with their Leveraged Buyout (LBO) European targets. These temporary acquisitions aim to restore the target’s value and to provide a capital gain to the sponsor. The performance-based reputation of the sponsor could incentivize the latter to value capture at the expense of the target rather than value creation. Since LBOs are highly-levered transactions and sponsors are active investors, we study how corporate governance mechanisms, namely equity stakes and enhanced industry expertise, affect the target’s risk of financial distress (Altman’s Z-score; O-score; Zmijewski-Score). Studying a 2013-2016 sample of 307 firms (targets and non-LBO firms), with a linear regression we find that sponsors, compared to other types of ownership, make a better use of equity stakes and industry experts to improve strategic planning and ultimately to mitigate the risk of financial distress of the target; however, results do not completely exclude that sponsors use these corporate governance mechanisms also for value capture, especially by opportunistic uses of assets rather than an inefficient use of leverage. These findings are useful to targets, investors in PE-LBO funds, and regulators.