What drives investment decisions on equity stake in private equity? The Italian case before and after the great financial crisis

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Abstract

The paper aims at developing a framework in the context of the Italian market to explain whether the equity stake acquired by private equities (PEs) in a target company changes according to certain firm-specific and deal-specific characteristics. In addition, the study analyzes whether the 2008 global financial crisis has affected investment decisions as well. The study focuses on a sample of 178 deals involving Italian companies in one of two different timeframes: 1) the pre-crisis period, including deals from 2003–2007 and 2) the post-crisis period, including deals from 2013–2017. The sample was extracted from the Private Equity Monitor Report (http://www.privateequitymonitor.it/pubblicazioni.php) and selected from 937 available deals in the period 2002–2018. The analysis has been carried out by using multivariate regressions to understand which factors influence the percentage of equity acquired by private equities. The results of the analysis show that PEs acquire higher stakes whenever the company is not privately owned by a family, the economy is recovering from a crisis and the company has lower margins or has recently recorded lower revenue growth. The paper contributes to the existing research on Italian private equity activity by widening the scope of other similar studies available so far. Thanks to an innovative approach we also initiate a new stream of analyses and studies aiming at fine-tuning, improving, and updating the framework that might predict, ex-ante, the level of PE investments in a certain economy as a “dependent variable” of companies’ specific characteristics.

Keywords: Private Equity, Crisis, Equity Stake, Italy, Investment Choice, Family-Owned Targets

Authors’ individual contribution: Conceptualization — G.G. and G.C.; Methodology — G.G. and G.C.; Formal Analysis — G.G. and G.C.; Investigation — G.G. and G.C.; Writing — G.G. and G.C.; Supervision — G.G. and G.C.; Project Administration — G.G. and G.C.; Funding Acquisition — G.G. and G.C.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: We recognize the importance of the contributions made by: Stefano Gatti (Investment Banking and Private Equity Professor at Bocconi University), Emiliano Sironi (Statistics Professor at Bocconi University), Bocconi University. Authors would like to thank for the research assistance Giulia Zanetello from Bocconi University and for the proofreading Gaia Blandano.

JEL Classification: G34, G24

Received: 03.02.2021
Accepted: 21.04.2021
Published online: 22.04.2021

How to cite this paper: Cesario, G., & Gigante, G. (2021). What drives investment decisions on equity stake in private equity? The Italian case before and after the great financial crisis [Special issue]. Corporate Ownership & Control, 18(3), 224–240. https://doi.org/10.22495/cocv18i3siart1