Combining Banking with Private Equity Investing

47 Pages Posted: 18 Mar 2010 Last revised: 15 Feb 2018

See all articles by Lily H. Fang

Lily H. Fang

INSEAD - Finance

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Private Capital Research Institute

Date Written: April 16, 2012

Abstract

Bank-affiliated private equity (PE) groups account for 30% of all PE investments. These affiliated groups’ market share is highest during peaks of the PE market, as is the fraction of transactions where the parent bank leads the loan syndicate (parent-financed deals). Bank-affiliated deals are similar in characteristics and financing to stand-alone deals, but have worse outcomes if consummated during the peaks of the credit market. Parent-financed deals enjoy significantly better financing terms than standalone deals, but do not exhibit better performance. The parent-financing advantage in loan terms is concentrated during credit market peaks when banks tend to syndicate more of the loans to external loan investors, and is not explained by the banks’ previous relationships with the targets, the PE groups’ reputations, or the banks’ prominence in structured financing markets. Banks’ involvement in private equity investments provides significant cross-selling opportunities. Collectively, this evidence is consistent with banks’ taking advantage of favorable credit-market conditions.

Keywords: Private equity, LBO, Banks, Bank regulation

JEL Classification: G21, G23, G24, G28

Suggested Citation

Fang, Lily H. and Ivashina, Victoria and Lerner, Josh, Combining Banking with Private Equity Investing (April 16, 2012). AFA 2011 Denver Meetings Paper, Harvard Business School Finance Working Paper No. 10-106, Review of Financial Studies, 26 (9), 2137-2173, 2013, Available at SSRN: https://ssrn.com/abstract=1571921 or http://dx.doi.org/10.2139/ssrn.1571921

Lily H. Fang

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France

Victoria Ivashina (Contact Author)

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Josh Lerner

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Harvard University - Private Capital Research Institute ( email )

114 Western Ave
Allston, MA 02134
United States

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