Managing and developing an investment in PE is quite complex, as there is no other alternative asset class where the performance gap between top- and bottom-quartile PE funds is wider than the PE asset class. In addition to examining the actions undertaken by PE companies during the investment period, the right target has to be selected. To date the academic literature regarding the selection of a promising target company on an empirical basis is scarce. In particular it is not clear how PE companies selection criteria differentiate in a country comparison.
The present empirical analysis therefore provides an empirical approach to contribute to the research field of PE target selection with a country comparison by identifying PE target characteristics for Germany and Great Britain.
Table of Contents
1 Private Equity and the German British Comparison
2 Background and Literatur Review
2.1 Introduction of Private Equity
2.2 Macro-Level Determinants
2.3 Micro-Level Determinants
2.3.1 Identification of Company-Specific Determinants from Value Creation Drivers
2.3.2 Literature regarding Company-Level Determinants of Target Selection
2.4 Development of Hypotheses
3 Methodology
3.1 Data
3.2 Data Preparation
3.2.1 Restrictions on the Dataset
3.2.2 Variable Selection and Creation
3.3 Research Design
3.3.1 Subsampling of the Dataset
3.3.2 Statistical Inference Model
3.3.3 Application of different Sets of Explanatory Variables
4 Empirical Results
4.1 Descriptive Statistics
4.2 Regression Estimation Results
5 Discussion
6 Conclusion
Research Objectives and Key Themes
This thesis examines company-level characteristics of private equity (PE) target companies through a comparative analysis between Germany and Great Britain. The research aims to identify specific determinants that influence the probability of a company being acquired by a PE investor, utilizing a pooled logit regression model across various subsets of data to highlight how regulatory frameworks and investor landscapes shape target selection.
- Comparison of PE investment landscapes in Germany and Great Britain.
- Identification of company-specific characteristics as target selection determinants.
- Analysis of macro- and microeconomic drivers of PE investment.
- Development and empirical testing of hypotheses regarding investment preferences.
- Evaluation of the impact of financial ratios and company size on acquisition probability.
Excerpt from the Book
1 Private Equity and the German British Comparison
“Private Equity is a great way to make money, but it’s an even better way to lose money.” This quote by Leon Black, the founder of Apollo Global Management describes Private Equity (PE) as a high-risk investment tool, where the potential for financial comes with an at least equally risk of financial losses. Nevertheless, PE has developed into one of the most attractive asset classes worldwide. This is underpinned by the investment strategy of the Yale endowment, which is one of the most famous and most successful college endowments.
One reason for Yale’s outperformance of other portfolios is the high diversification between asset classes. Another is investments in alternative assets. The Yale endowment used to invest in a very traditional manner of 60% in stocks and 40% in bonds.
Presently, this split has changed tremendously. The Yale Endowment has pioneered a strategic shift towards investment in alternative assets. Especially the asset class PE is strongly represented in the portfolio. Almost 40% of the portfolio is invested in PE (including Venture Capital (VC)) as of mid-2020.
Summary of Chapters
1 Private Equity and the German British Comparison: Provides the introduction to the thesis, highlighting the attractiveness of PE and setting the stage for the country comparison between Germany and Great Britain.
2 Background and Literatur Review: Offers a theoretical overview of PE, discusses macro- and micro-level determinants of PE target selection, and develops the study's hypotheses.
3 Methodology: Details the data acquisition from Preqin and Orbis, covers the data preparation and restriction process, and introduces the statistical research design using pooled logit regression.
4 Empirical Results: Presents the descriptive statistics for the dataset and reports the findings from the regression estimation models.
5 Discussion: Critically evaluates the empirical findings against the established hypotheses and existing literature, while also addressing the limitations of the research.
6 Conclusion: Summarizes the study’s contributions and offers insights into potential areas for future academic investigation.
Keywords
Private Equity, Target Selection, Germany, Great Britain, Regression Analysis, Financial Ratios, Investment Strategy, Value Creation, Institutional Investors, Corporate Finance, Company Characteristics, Asset Management, Logit Model, PE-backed companies, Macroeconomic Determinants.
Frequently Asked Questions
What is the core focus of this thesis?
The thesis investigates the characteristics of companies targeted by private equity investment, specifically comparing German and British markets to understand what makes a company an attractive PE target.
What are the primary themes addressed?
The work explores regulatory differences, investor landscapes (such as the dominance of pension funds in the UK vs. family offices in DACH countries), and specific financial attributes of target companies.
What is the study’s specific research question?
The research seeks to identify which company-specific indicators significantly correlate with the probability of a firm being acquired by a PE investor in different regulatory environments.
Which scientific methods were applied?
The author employs a pooled logit regression analysis using data merged from Preqin and Orbis, encompassing both publicly listed and unlisted companies across multiple years.
What topics are discussed in the main body?
The main sections cover value creation drivers, the development of four specific hypotheses, a categorization of company sizes (small, medium, large), and empirical results based on financial ratios like EBITDA leverage and liquidity.
Which keywords categorize this work?
Private Equity, Target Selection, Cross-country Comparison, Financial Ratios, and Corporate Finance.
Why are German and British markets chosen for this comparison?
They are chosen because they represent the two largest PE markets in Europe, yet they operate under different legal systems—civil law in Germany versus common law in Great Britain—which influences investor behavior.
How does corporate size influence target selection?
The study uses subsamples to demonstrate that PE investors have different criteria for small, medium, and large companies, particularly regarding liquidity and financial leverage.
What conclusion does the author reach regarding the "conservative" financial structure?
The empirical results suggest a tendency supporting the hypothesis that German PE targets exhibit a more conservative financial structure compared to their British counterparts.
- Arbeit zitieren
- Maximilian Michl (Autor:in), 2023, Company-Specific Characteristics of Private Equity Targets. A Comparison between Germany and Great Britain, München, GRIN Verlag, https://www.grin.com/document/1398116
