IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v50y2010i1p79-102.html
   My bibliography  Save this article

Private equity bids in Australia: an exploratory study

Author

Listed:
  • Larelle Chapple
  • Peter M. Clarkson
  • Jesse J. King

Abstract

In this study, we provide an insight into how private equity players choose their targets and the bid arrangements they prefer. We test our expectations of the unique features of private equity targets using a sample of 23 listed private equity target firms during 2001–2007. We find, relative to a benchmark sample of 81 corporate targets matched by year and industry, the private equity target firms to be larger, more profitable, use their assets more efficiently, more highly levered and have greater cash flow. Multivariate testing indicates that private equity targets have relatively greater financial slack, greater financial stability, greater free cash flow and lower measurable growth prospects. All conclusions are found to be robust to a control sample of 502 takeover bids during 2001–2007.

Suggested Citation

  • Larelle Chapple & Peter M. Clarkson & Jesse J. King, 2010. "Private equity bids in Australia: an exploratory study," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(1), pages 79-102, March.
    • Handle: RePEc:bla:acctfi:v:50:y:2010:i:1:p:79-102
    DOI: 10.1111/j.1467-629X.2009.00323.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-629X.2009.00323.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-629X.2009.00323.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Larelle Chapple & Blake Christensen & Peter M. Clarkson, 2007. "Termination fees in a ‘bright line’ jurisdiction," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(4), pages 643-665, December.
    4. Opler, Tim & Titman, Sheridan, 1993. "The Determinants of Leveraged Buyout Activity: Free Cash Flow vs. Financial Distress Costs," Journal of Finance, American Finance Association, vol. 48(5), pages 1985-1999, December.
    5. Ronan G. Powell, 1997. "Modelling Takeover Likelihood," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7‐8), pages 1009-1030, September.
    6. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-852, September.
    7. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    8. Raymond da Silva Rosa & Terry Walter, 2004. "Australian Mergers and Acquisitions Since the 1980s: What Do We Know and What Remains to Be Done?," Australian Journal of Management, Australian School of Business, vol. 29(1_suppl), pages 1-1, June.
    9. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73(2), pages 110-110.
    10. Ronan G. Powell, 1997. "Modelling Takeover Likelihood," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(7‐8), pages 1009-1030, September.
    11. Shivdasani, Anil, 1993. "Board composition, ownership structure, and hostile takeovers," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 167-198, April.
    12. Henry, Darren, 2004. "Corporate governance and ownership structure of target companies and the outcome of takeovers," Pacific-Basin Finance Journal, Elsevier, vol. 12(4), pages 419-444, September.
    13. Kenneth Lehn & Annette Poulsen, 1989. "Free Cash Flow and Stockholder Gains in Going Private Transactions," Journal of Finance, American Finance Association, vol. 44(3), pages 771-787, July.
    14. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-488, June.
    15. Smith, Richard L & Kim, Joo-Hyun, 1994. "The Combined Effects of Free Cash Flow and Financial Slack on Bidder and Target Stock Returns," The Journal of Business, University of Chicago Press, vol. 67(2), pages 281-310, April.
    16. David Scharfstein, 1988. "The Disciplinary Role of Takeovers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(2), pages 185-199.
    17. Bruner, Robert F., 1988. "The Use of Excess Cash and Debt Capacity as a Motive for Merger," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(2), pages 199-217, June.
    18. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73(4), pages 351-351.
    19. Charlie Weir & Mike Wright, 2006. "Governance and takeovers: are public-to-private transactions different from traditional acquisitions of listed corporations?," Accounting and Business Research, Taylor & Francis Journals, vol. 36(4), pages 289-307.
    20. repec:bla:jfinan:v:44:y:1989:i:3:p:771-87 is not listed on IDEAS
    21. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Subhrendu Rath & Mamunur Rashid, 2016. "Undervaluation and private equity takeovers," Australian Journal of Management, Australian School of Business, vol. 41(4), pages 735-759, November.
    2. Sheeba Kapil & Vrinda Rawal, 2023. "Systematic Literature Review of Private Equity Determinants: Status, Evidence and Open Issues," Vision, , vol. 27(5), pages 567-581, November.
    3. Sarah Osborne, 2020. "Abnormal returns and asymmetric information surrounding strategic and financial acquisitions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3991-4030, December.
    4. Guy Schofield, 2020. "Evidence of governance arbitrage by private equity sponsors," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 971-1005, April.
    5. Peter M Clarkson & Shams Pathan & Andrew Tellam, 2016. "Do private equity target firms exhibit less effectual governance structures?," Australian Journal of Management, Australian School of Business, vol. 41(2), pages 244-270, May.
    6. Sarah Osborne & Dean Katselas & Larelle Chapple, 2012. "The preferences of private equity investors in selecting target acquisitions: An international investigation," Australian Journal of Management, Australian School of Business, vol. 37(3), pages 361-389, December.
    7. Martin Bugeja & Kosta Sinelnikov, 2012. "Public versus private takeovers of Australian stock exchange listed targets," Australian Journal of Management, Australian School of Business, vol. 37(3), pages 391-414, December.
    8. Brindusa�Maria BUZILA (Mocanu), 2016. "The Cee Companies, Attractive Deals For Leveraged Buyout Transactions?," Journal of Public Administration, Finance and Law, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 9(9), pages 131-144, June.
    9. Rudina Degjoni & Ilirjana Loxha, 2020. "Albania’s Plan: Response to COVID-19," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 6, ejes_v6_i.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sarah Osborne & Dean Katselas & Larelle Chapple, 2012. "The preferences of private equity investors in selecting target acquisitions: An international investigation," Australian Journal of Management, Australian School of Business, vol. 37(3), pages 361-389, December.
    2. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    3. Peter M Clarkson & Shams Pathan & Andrew Tellam, 2016. "Do private equity target firms exhibit less effectual governance structures?," Australian Journal of Management, Australian School of Business, vol. 41(2), pages 244-270, May.
    4. Ronan Powell & Alfred Yawson, 2007. "Are Corporate Restructuring Events Driven by Common Factors? Implications for Takeover Prediction," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(7‐8), pages 1169-1192, September.
    5. Martynova, M. & Renneboog, L.D.R., 2005. "Takeover Waves : Triggers, Performance and Motives," Discussion Paper 2005-029, Tilburg University, Tilburg Law and Economic Center.
    6. Martin Bugeja & Kosta Sinelnikov, 2012. "Public versus private takeovers of Australian stock exchange listed targets," Australian Journal of Management, Australian School of Business, vol. 37(3), pages 391-414, December.
    7. Kevin Hon Sheng Yap & Seow Eng Ong & Wee Yong Yeo, 2018. "Demystifying the Management Structure Puzzle: an Empirical Investigation into the Drivers of REIT Internalization," The Journal of Real Estate Finance and Economics, Springer, vol. 57(3), pages 367-399, October.
    8. Martynova, M., 2006. "The market for corporate control and corporate governance regulation in Europe," Other publications TiSEM 8651e281-4914-41f2-ac14-1, Tilburg University, School of Economics and Management.
    9. Riccardo Ferretti & Pierpaolo Pattitoni & Alex Castelli, 2019. "Security-voting structure and equity financing in the banking sector: ‘one head-one vote’ versus ‘one share-one vote’," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 23(4), pages 1063-1097, December.
    10. Utz Weitzel & Killian J. McCarthy, 2011. "Theory and evidence on mergers and acquisitions by small and medium enterprises," International Journal of Entrepreneurship and Innovation Management, Inderscience Enterprises Ltd, vol. 14(2/3), pages 248-275.
    11. Robin Nuttall, 1999. "An Empirical Analysis of the Effects of the Threat of Takeover on UK Company Performance," Economics Series Working Papers 1999-W05, University of Oxford, Department of Economics.
    12. Ali-Yrkkö, Jyrki, 2002. "Mergers and Acquisitions - Reasons and Results," Discussion Papers 792, The Research Institute of the Finnish Economy.
    13. David B. Audretsch & Erik E. Lehmann, 2013. "Corporate governance in newly listed companies," Chapters, in: Mario Levis & Silvio Vismara (ed.), Handbook of Research on IPOs, chapter 9, pages 179-206, Edward Elgar Publishing.
    14. Humphery-Jenner, Mark L. & Powell, Ronan G., 2011. "Firm size, takeover profitability, and the effectiveness of the market for corporate control: Does the absence of anti-takeover provisions make a difference?," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 418-437, June.
    15. Sokolyk, Tatyana, 2011. "The effects of antitakeover provisions on acquisition targets," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 612-627, June.
    16. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    17. Hellwig, Martin, 1998. "On the economics and politics of corporate finance and corporate control," Papers 98-43, Sonderforschungsbreich 504.
    18. Schlingemann, Frederik P., 2004. "Financing decisions and bidder gains," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 683-701, November.
    19. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    20. Julan Du & Charles Ka Yui Leung & Derek Chu, 2014. "Return Enhancing, Cash-rich or simply Empire-Building? An Empirical Investigation of Corporate Real Estate Holdings," International Real Estate Review, Global Social Science Institute, vol. 17(3), pages 301-357.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:50:y:2010:i:1:p:79-102. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.