Investor activism strategies of private equity firms: evidence from continental Europe

Abstract

Purpose This paper aims to deal with the issue of shareholder activism of private equity investors in public companies. The study identifies characteristics of target firms and investors related to the likelihood of private equity activism. The research also examines whether shareholder activism strategy of private equity investors is associated with the better performance in future and value creation of target firms. Design/methodology/approach The paper applies econometric modeling to hand-collected data on private equity investments in listed companies, in the form of private investment in public equity and open-market share purchases, from eight Continental Europe’s countries for the period 2005–2014. Findings The findings indicate that the probability of shareholder activism is higher if the target firm’s industry corresponds to the private equity investor’s industry specialization, if the private equity firm is older, if the target is larger and the average ownership share purchased by the investor is higher. Conversely, the probability of shareholder activism is lower where a private equity firm invests in the target for the first time. A target firm with an activist investor has poorer operational performance results one year following the investment compared to a target firm with a passive private equity investor. Research limitations/implications Results from the analysis of transactions in Continental Europe countries with French and German legal origin may be not generalizable to other markets with the different legal tradition and institutional environment. Originality/value This research provides new empirical evidence on private equity activism in listed companies of Continental Europe. By distinguishing between active and passive investments, testing rarely considered characteristics to provide valuable insights and analyzing the effect of activism on the target firm’s performance, the study contributes variously to the still-limited body of literature on private equity activism in public companies with a governance structure based on concentrated ownership. The findings emphasize the relationship between shareholder activism and both target and investor’s characteristics from perspective of mitigating agency problem and value creation in target firms. By simultaneously investigating investments in public companies from several European markets, the study complements empirical evidence mostly obtained from studies of a single national market.

Research on Gambling Agreement in Private Equity Financing

“…Private equity invests widely in the equity, debt and "mezzanine" interests in between. The enterprise completes the process of private equity financing and handles the corresponding private equity funds [4].…”

Private equity investment tenure and financial performance: Evidence from European PIPE transactions

“…at the same time during stable periods of the economic cycle performance doesn't differ among industries that are backed by PE investments and sectors that do not obtain substantial amounts of PE investments. Other studies document that if a PE firm already made investments in targets from some industry it helps to increase portfolio company's performance and promotes value creation due to accumulated expertise of a PE investor in particular sector [Rigamonti et al, 2016;gedjadze, Piot, Schwienbacher, 2017;Berezinets, Ilina, 2021].…”

“…PIPEs mainly involve issuing common shares or equity-linked securities [PIPEs, 2010]. due to a number of benefits over other forms of equity financing PIPE investments provide public companies with a relatively inexpensive financing compared to public offering [Berezinets, Ilina, 2021]. Many small public firms use this type of financing [Sjostrom, 2007].…”

“…this empirical study is based on the theoretical background of PE investments relationship with a company performance. there are many studies devoted to PE investments impact on target company performance results (e.g., [acharya et al, 2012;chen et al, 2014;Battistin et al, 2017;Berezinets, Ilina, 2021]). But research covering private equity investment tenure (a period of time from initial investment to complete exit) is scarce (e.g., [Badunenko, Baum, Schäfer, 2010]).…”