What is Different About Private Equity-Backed Acquirers?

This paper investigates whether private equity (PE)-backed acquirers have a “parenting advantage” in the mergers & acquisitions (M&A) market. We employ a sample of 788 PE-backed firms and a carefully matched control group of 6,652 non-PE backed peers, for which we observe the entire acquisition history over a 19-year time span. Difference-in-differences estimates suggest that PE backing induces a sizeable but short-lived boost to acquisition activity, whereas type and complexity of these acquisitions are not different. These results are consistent with the idea that PE backing enhances execution and speed in the M&A market. We find that portfolio firms benefit from this acquisition boost through improved valuations and margins on average. The extent to which this holds true, however, depends on the institutional setting of the PE owner. When there is not enough time for learning gains due to an approaching end of the fund lifetime, or when knowledge cannot diffuse due to limited attention of the PE owner, acquisitions may even be detrimental