Social Networks Spur Leveraged Buyouts
Companies with a board member who has prior LBO experience are much more likely to receive a private equity offer, according to a new working paper.* The paper examines the propensity for U.S. public companies to become targets for private equity-backed, take-private transactions.
Looking at 483 private equity-backed deals in the 2000-2007 period relative to public companies the paper finds that, in addition to the financial drivers studied in previous works, board characteristics and director networks are also associated with deal generation.
We find that a company that has a director who has had LBO experience through prior board service is ~40% more likely to receive a private equity offer and that the strength of this effect varies with the influence of the director and the quality of the prior LBO experience.
The paper’s findings support the idea that directors and social networks play an influential role in change-of-control transactions.
* Board Interlocks and the Propensity to be Targeted in Private Equity Transactions - by Toby Stuart and Soojin Yim.
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