Private equity as an intermediary in the market for corporate assets
- 8 June 2021
- journal article
- research article
- Published by Academy of Management in Academy of Management Review
- Vol. 48 (4), 719-748
- https://doi.org/10.5465/amr.2020.0168
Abstract
We examine the role of non-venture private equity (PE) firms as intermediaries in the market for corporate assets. We argue that in order to create and capture value by acquiring established businesses and selling them to corporate buyers, PE firms must possess at least one of three potential advantages: they must be able to identify businesses that are currently undervalued (valuation advantage), they must be able to enhance the intrinsic value of the business (governance advantage), or they must be able to match the business to a more synergistic corporate owner than is immediately available (timing advantage). We discuss why, and under what conditions, PE firms may thus have an advantage in buying, owning, and selling businesses, and derive a set of propositions predicting which targets PE firms are most likely to pursue. Our study thus offers a comprehensive yet contingent theory of non-venture private equity, developing an integrated value-based framework to explain this important and growing phenomenon. In doing so, we also offer new insights into the role of intermediaries in strategic factor markets, especially the market for the buying and selling of businesses.This publication has 118 references indexed in Scilit:
- Looking Backward Instead of Forward: Aspiration-Driven Influences on the Efficiency of the Capital Allocation ProcessThe Academy of Management Journal, 2013
- The Evolution and Strategic Positioning of Private Equity FirmsAcademy of Management Perspectives, 2013
- Private Equity and Entrepreneurial Governance: Time for a Balanced ViewAcademy of Management Perspectives, 2013
- Opportunity costs, industry dynamics, and corporate diversification: Evidence from the cardiovascular medical device industry, 1976–2004Strategic Management Journal, 2013
- Value creation and value capture with frictionsStrategic Management Journal, 2011
- The Strategy Research Initiative: Recognizing and encouraging high-quality research in strategyStrategic Organization, 2010
- Diversification, coordination costs, and organizational rigidity: evidence from microdataStrategic Management Journal, 2010
- Envy, comparison costs, and the economic theory of the firmStrategic Management Journal, 2008
- Entrepreneurship, subjectivism, and the resource‐based view: toward a new synthesisStrategic Entrepreneurship Journal, 2008
- When is more better? The impact of business scale and scope on long‐term business survival, while controlling for profitabilityStrategic Management Journal, 2006