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Who gets private equity? The role of debt capacity, growth and intangible assets
Baeyens, Katleen Manigart, Sophie
Baeyens, Katleen
Manigart, Sophie
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Publication Type
Working paper
Editor
Supervisor
Publication Year
2006
Journal
Book
Publication Volume
Publication Issue
24
Publication Begin page
Publication End page
Publication Number of pages
35
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Abstract
While informed private equity (PE) investors screen for the most promising ventures, firms may avoid raising of PE for issues of cost and control. A critical question therefore is: which firms get PE? We consider both supply and demande side arguments to study the characteristics of a sample of 231 firms that did receive PE and compare them to those of a matched sample. Supporting the pecking order theory, we show that firms rely on PE funding when there are no alternatives, i.e.when their debt capacity is limited, due to financial and bankruptcy risk and due to important investments in intangibles. PE investors, from their side, select firms with substantial growth options. Further, firms that receive PE have grown more before the funding event than companies that did not receive PE. Keywords: financing choice, private equity JEL classification: G32
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Keywords
Corporate Finance, Entrepreneurship, Leverage, Capital Structure, LBO, Financial Flexibility