Private Equity Funds and Acquisition Multiples in the BRIC

Abstract

The Private Equity (PE) activity has been growing globally. It represents a significant stake of merge and acquisition (M&A) transactions. We expect that Private Equity managers pay lower prices than non-PE bidders. Their cost of capital reflect illiquidity premium, usually there are no synergy gains in PE deals, they are recurrent players in M&A, and some entrepreneurs accept lower offer prices from PE in exchange of fund’s know-how and certification effect. The objective of this article is to investigate if the PE acquisition multiples are lower than non -PE multiples in the BRIC countries (Brazil, Russia, India and China). Those emerging market countries raised a lot of PE capital recently, and funds should be efficient to deliver a premium for emerging markets. We run multiple linear regression and propensity score matching. Our results showed that on average PE funds had lower multiples than non-PE funds, but this is not the case in all the BRIC countries. When we run the regressions for countries individually, only Russia and China had a significant discount in the acquisition multiple, indicating that PE deal flow and discipline for investing differ in the BRIC.