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Does CEO retention in private equity transactions harm the target firm shareholders?
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« on the power of working in entrepreneurial teamsSkills of entrepreneurs »

Does CEO retention in private equity transactions harm the target firm shareholders?

12/08/12


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Does CEO retention in private equity transactions harm the target firm shareholders?

Permalink 10:55:47 am, by editor of MarketObservation.com Email , 195 words   English (US)

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Categories: Deals, Valuation, Statistics, Performance Measurement, Corporate Governance, Market Characteristics

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The answer seems to be clearly No, as a new study shows:

Bargeron, Leonce, Schlingemann, Frederik P., Zutter, Chad J. and Stulz, Rene M., Does Target CEO Retention in Acquisitions Involving Private Equity Acquirers Harm Target Shareholders? (December 5, 2012). Charles A. Dice Center Working Paper No. 2012-026. Available at SSRN: http://ssrn.com/abstract=2185574

Abstract:

"While there is widespread concern that target CEO retention by the acquirer harms target shareholders when the acquirer is a private equity firm, CEO retention can also be valuable to private equity acquirers, and hence potentially benefit shareholders. We find that CEO retention does not harm target shareholders when the acquirer is a private equity firm. In fact, we show that, in acquisitions by private equity firms, better performing CEOs are more likely to be retained and target shareholders gain an additional 10% to 23% of pre-acquisition firm value when the CEO is retained compared to when the CEO is not retained. In contrast, shareholders of targets acquired by operating companies do not benefit from CEO retention. Finally, we find no evidence that the target’s value is artificially depressed ahead of a private equity acquisition where the CEO is retained."

Keywords: Private Equity, CEO Retention, Acquisition Premium

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