The Private Equity Market

This chapter discusses the going-private transactions by focusing on the role of private equity firms. Private equity firms have played a major role in the takeover market during the past quarter of a century. These firms have been able to attract large amounts of capital and very aggressively pursued takeovers. Kohlberg Kravis and Roberts (KKR) formalized the model of the leveraged buyout (LBO) firm—a type of business that later became known as private equity. In order for private equity firms to generate an acceptable return for their investors, they need to be able to purchase target companies at prices that allow them to achieve a particular hurdle rate. The chapter explains the characteristics of private equity returns. When the directors had negative experiences with private equity in the past, what they termed the public equity (PE) Interlock Effect largely disappeared.