Private Equity Acquisitions of Continental European Firms: the Impact of Ownership and Control on the Likelihood of Being Taken Private

Abstract

This paper studies the motives behind private equity acquisitions of publicly listed firms in continental Europe. As corporate control and ownership in continental Europe tend to be highly concentrated, we argue that it is important to take into account the incentives of the incumbent large shareholder to monitor the management and the private benefits of control the latter may derive from the firm when measuring the likelihood of the firm being taken over by a private equity investor. We find strong and consistent evidence that both have a significant impact on the likelihood of a private equity acquisition.

Reasons for Delisting and Consequences: A Literature Review and Research Agenda

“…() provide support for this assumption for the US market and Achleitner et al . () find the same result for LBOs financed by private equity in Europe. However, as noted by Renneboog et al .…”

“…() find that the stake owned by the largest shareholders in European LBO targets is approximately twice as large as in US and UK targets. European delisted firms exhibit a pattern of concentrated ownership, both for BOSOs (due to the 90% threshold for the squeeze‐out) and for LBOs: roughly 71% of firms delisted via an LBO have a shareholder who owns more than 25% of the voting rights (Achleitner et al ., ).…”

“…Achleitner et al . () find strong evidence that the likelihood of a firm being delisted by a private equity investor decreases for firms with a high ownership‐control discrepancy. The ownership‐control discrepancy is defined as a divergence between the ownership structure (as measured by the shareholders’ cash‐flow rights) and the control structure (as measured by their voting rights).…”

Delistings, Controlling Shareholders and Firm Performance in Europe

“…As Achleitner et al . () note, the evidence on Continental Europe is still scarce compared to that for the UK (Jelic et al ., ; Jelic and Wright, ). While there are differences in the characteristics of delisted firms, we find no evidence of a controlling shareholder effect in either of the two subsamples.…”

“…Controlling shareholders are also in a strong bargaining position when they face minority investors. The probability of being taken over by unrelated bidders decreases when a majority owner exists (Caprio et al ., ), and the presence of large shareholders decreases the likelihood of private equity acquisitions (Achleitner et al ., ). Moreover, being already in control of the firm, controlling shareholders that want to take their company private do not need to pay a premium for control.…”