The private equity sector in the Australian economy has achieved phenomenal growth over recent years. This study examines the determinants of private equity bids in Australia. By doing so, this study provides the first formal and preliminary investigation into the determinants of private equity bids in Australia. Propositions are developed based on theoretical literature and anecdotal evidence. The propositions are tested using a sample of 23 target firms subject to a takeover bid involving a private equity bidder between January 2001 and September 2007, and a control sample of 180 target firms subject to a takeover bid by an existing corporate group between July 2005 and September 2007. Univariate tests and a multivariate logistic regression are employed in the study.
The results indicate that targets of private equity bidders have higher free cash flows than other targets. The results also provide evidence that the measurable growth prospects of private equity targets are lower than other targets. Further, the evidence reveals that private equity bidders target larger, more profitable firms than other bidders, and are inclined to target certain industries. The results also indicate that firms subject to private equity bids have a higher number of blockholders and greater ownership concentration than firms subject to bids from existing corporate groups.
The primary implication of this study is to provide a greater understanding of the reasoning behind target selection and bid arrangements of private equity bids, and to explain the preference of the private equity bidders for debt financing.