Minority and majority private equity investments: firm performance and governance

Abstract

This paper adds to the literature on the determinants of the effects of private equity (PE) investments. Using an original dataset of 191 target firms in Italy, we study the effects on performance and governance of the stakes acquired by the PE investor. We employ a difference-in-differences approach and compare target and control firms sharing similar characteristics and performance in the years preceding the deal. We find that PE investment has a positive effect on profitability, sales, and employment; these effects are larger for minority investments. We argue that this signals effective governance that follows from complementing rather than substituting incumbent managers in minority investments

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

“…The empirical evidence varies on PE active investor's impact on the target's operational and accounting performance. Battistin et al (2017) found a positive impact of PE investments on the target firm's sales and profitability in the case of minority interest investments, but did not provide an evidence of a significant change in sales and EBITDA (earnings before interest, taxes, depreciation and amortization) if a PE investor acquired a majority stake (50% and more) in a target company. Clifford (2008) reported that companies targeted by blockholder activists experienced improvements in operational efficiency as a result of activist investments compared to firms targeted by passive investors.…”

Governance Implications of Attracting External Equity Investors in Private Family Firms

“…While it is commonly assumed that family firms are reluctant to hand over control to outside investors (La Porta, Lopez-De-Silanes, & Shleifer, 1999;Mahérault, 2004;Poutziouris, 2001;Wu, Chua, & Chrisman, 2007), more and more private family firms open their capital for external investors (Battistin, Bortoluzzi, Buttignon, & Vedovato, 2017;Dawson, 2011;Wessel, Decker, Lange, & Hack, 2014). This evolution is driven by trends in both the demand and supply of capital.…”

“…The insights also call for research that takes new theoretical perspectives to study owner dynamics in private firms. While research in this area is largely dominated by agency theory (Battistin et al, 2017;Chrisman, Chua, Steier, Wright, & McKee, 2012;Daily, Dalton, & Cannella, 2003), our model calls for better integrations with alternative theoretical perspectives. Second, our study contributes to the family business literature by examining gradual transitions from a family to a non-family firm.…”

“…Some studies analyze the selection criteria used by PE when investing in family firms (Dawson, 2011) or valuation particularities of family firms (Ahlers, Hack, & Kellermanns, 2014). Other studies analyze the process of professionalization of family firms post buyout (Howorth, Wright, Westhead, & Allcock, 2016), and the resulting impact of PE buyouts on the performance and growth of former family firms (Battistin et al, 2017;Croce & Martí, 2016;Scholes et al, 2010).…”

“…Even if partnering between private family firms and financial investors involves a risk of conflict, recent evidence indicates that more and more private family firms open their capital to investors (Battistin et al, 2017). A key question, therefore, is what are the governance implications of a transition from a fully-owned family business to a multiple ownership structure involving outside equity investors (Uhlaner et al, 2007), and what type of investors are most likely to provide a good fit?…”