Do private equity buyouts represent value for target shareholders? Premiums in the boom of the early 2000s

Abstract

This study compares the takeover premiums for 55 private equity buyouts with 59 takeovers involving a public acquirer, from the US takeover market between 2004 and 2007. This investigation takes place amidst accusations of anti-competitive behaviour against some of the most active private equity groups in the US. While controlling for several other factors that might affect the takeover premium, we find weak evidence that bid premiums are significantly lower for target firms undergoing a private equity takeover than those subject to takeovers by public companies. We also demonstrate that abnormal returns earned by targets around takeover announcements can be a biased and misleading proxy for takeover premium.