Article

Divisional Buyouts by Private Equity and the Market for Divested Assets

Ulrich Hege, Stefano Lovo, Myron B. Slovin, and Marie E. Sushka

Abstract

We study the role and performance of private equity (PE) in corporate asset sales. Corporate sellers obtain significantly positive excess returns in PE deals, gains in wealth significantly greater than for intercorporate asset sales. Based on exit valuations for 98% of PE deals, we find gains in enterprise value in buyouts are significantly greater than for benchmark firms. Corporate seller excess returns are positively correlated with subsequent gains in asset enterprise value. A parsimonious auction model suggests that only restructuring capabilities of PE (not acquisition of undervalued assets) can explain the pattern of the gains generated in these PE deals.

Keywords

Divisional buyouts; asset sales; private equity; restructuring; auction;

JEL codes

  • G32: Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill
  • G34: Mergers • Acquisitions • Restructuring • Corporate Governance

Replaces

Published in

Journal of Corporate Finance, vol. 53, December 2018, pp. 21–37