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Private Equity and Advisors in Mergers and Acquisitions

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Private Equity and Advisors in Mergers and Acquisitions Private Equity and Advisors in Mergers and Acquisitions EFI Mission EFI, the Economic Research Institute at the Stockholm School of Economics, is a scientific institution that works independently of economic, political and sectional interests. It conducts theoretical and empirical research in the management and economic sciences, including selected related disciplines. The Institute encourages and assists in the publication and distribution of its research findings and is also involved in the doctoral education at the Stockholm School of Economics. At EFI, the researchers select their projects based on the need for theoretical or practical development of a research domain, on their methodological interests, and on the generality of a problem. Research Organization The research activities at the Institute are organized into 20 Research Centres. Centre Directors are professors at the Stockholm School of Economics. EFI Research Centre: Centre Director: Management and Organization (A) Sven-Erik Sjöstrand Entrepreneurship and Business Creation (E) Carin Holmquist Public Management (F) Nils Brunsson Information Management (I) Mats Lundeberg People and Organization (PMO) Andreas Werr Innovation and Operations Management (T) Pär Åhlström Media and Economic Psychology (P) Richard Wahlund Consumer Marketing (CCM) Magnus Söderlund Information and Communication Research (CIC) Per Andersson Marketing, Distribution and Industry Dynamics (D) Björn Axelsson Strategy and Competitiveness (CSC) Örjan Sölvell Accounting and Managerial Finance (B) Johnny Lind Financial Analysis and Managerial Economics in Accounting (BFAC) Kenth Skogsvik Finance (FI) Clas Bergström Health Economics (CHE) Magnus Johannesson International Economics and Geography (IEG) Mats Lundahl Economics (S) Paul Segerstrom Economic Statistics (ES) Anders Westlund Business Law (RV) Erik Nerep Tax Law (SR) Bertil Wiman Chair of the Board: Professor Carin Holmquist Director: Associate Professor Filip Wijkström Address EFI, Box 6501, SE-113 83 Stockholm, Sweden • Website: www.hhs.se/efi/ Telephone: +46(0)8-736 90 00 • Fax: +46(0)8-31 62 70 • E-mail [email protected] Private Equity and Advisors in Mergers and Acquisitions Linus Siming Dissertation for the Degree of Doctor of Philosophy, Ph.D. Stockholm School of Economics 2010. Keywords: private equity, financial advisors, mergers and acquisitions, social networks, former employees, financial intermediation, corporate control, conflicts of interest, investment banking, quick flip Private Equity and Advisors in Mergers and Acquisitions © EFI and Linus Siming, 2010 ISBN 978-91-7258-819-6 Printed in Sweden by: Intellecta Infolog, Göteborg 2010 Distributed by: EFI, The Economic Research Institute Stockholm School of Economics Box 6501, SE-113 83 Stockholm, Sweden www.hhs.se/efi To my parents Preface This report is a result of a research project carried out at the Centre for Research in Finance at the Economic Research Institute at the Stockholm School of Economics. This volume is submitted as a doctor‟s thesis at the Stockholm School of Economics. As usual at the Economic Research Institute, the author has been entirely free to conduct and present her research in her own ways as an expression of her own ideas. The institute is grateful for the financial support that has made it possible to fulfill the project. Filip Wijkström Clas Bergström Director Director Economic Research Institute Center for Research in Finance Stockholm School of Economics Stockholm School of Economics vii viii Acknowledgements I remain perpetually indebted and grateful to my faculty advisor Professor Mariassunta Giannetti for her continuous support, guidance and counsel throughout the process of writing this thesis. My collective gratitude is extended to the finance faculty for all the helpful comments on my research. In particular, I have greatly benefited from the advice and suggestions of Professor Per Strömberg. To my comrades-in-arms, the past and present finance PhD students, I direct my warm appreciation for the good camaraderie. Thanks also to the administrative staff that has always assisted me in the most kind and helpful way. Part of this thesis was written when I was a visiting scholar at the Leonard N. Stern School of Business, New York University. I thank the Stern Finance Department and in particular my faculty sponsor Professor Viral Acharya for the kind hospitality shown to me. My visit at Stern was made possible thanks to the financial support of the Carl Silfvén and Staffan Burenstam Linder Foundations. Bankforskningsinstitutet, the Jan Wallander and Tom Hedelius Foundation, and the Stockholm School of Economics financed my doctoral student years in Stockholm. I extend my deepest appreciation to all the generous financial benefactors. Finally, I wish to express my gratitude to my parents Per and Agneta for their support in all my various undertakings by dedicating this doctoral thesis to them. Stockholm, April 2010 ix x Contents Introduction ........................................................................................................................ 13 Paper One Your Former Employees Matter: Private Equity Firms and Their Financial Advisors ... 17 1.1 Data .................................................................................................................................................. 22 1.2 Mandate Probability Model ........................................................................................................... 24 1.3 Results of the Mandate Probability Model ................................................................................. 29 1.4 Instrumental Variable Approach and Robustness Checks ....................................................... 32 1.5 Mutual Networking Benefits......................................................................................................... 36 1.6 Conclusions ..................................................................................................................................... 43 1.7 References ....................................................................................................................................... 44 1.8 Tables ............................................................................................................................................... 48 1.9 Appendix ......................................................................................................................................... 65 Paper Two Dual Role Advisors and Conflicts of Interest .................................................................... 67 2.1 Hypothesis Development .............................................................................................................. 70 2.2 Empirical Methodology ................................................................................................................. 75 2.3 Empirical Results and Analysis..................................................................................................... 79 2.4 Conclusions ..................................................................................................................................... 86 2.5 References ....................................................................................................................................... 88 2.6 Tables ............................................................................................................................................... 92 2.7 Appendix ....................................................................................................................................... 107 Paper Three Private Equity Firms and Quick Flip Sales ..................................................................... 109 3.1 Background and Testable Predictions ....................................................................................... 111 3.2 Empirical Methodology ............................................................................................................... 114 3.3 Results ............................................................................................................................................ 115 3.4 Conclusions ................................................................................................................................... 119 3.5 References ..................................................................................................................................... 120 3.6 Tables ............................................................................................................................................. 123 3.7 Appendix ....................................................................................................................................... 127 xi xii Introduction This doctoral thesis contains three empirical research papers in corporate finance. The papers were written between the spring of 2007 and the spring of 2010 when I was a PhD student at the Department of Finance at the Stockholm School of Economics. A substantial amount of thesis work was conducted during the academic year of 2008/2009 when I was a visiting scholar at the Finance Department at the Leonard N. Stern School of Business, New York University. The papers are self-contained and each written with the purpose of eventually being published as separate articles in academic journals. In between them, the papers share two common themes, private equity and the role of advisors in mergers and
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