The Routledge Companion to Management Buyouts

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COLLABORATION DECISIONS IN PRIVATE EQUITY INVESTMENTS

Anantha Krishna Divakaruni

Introduction

Unlike venture capital (VC) firms that invest in risky, early-stage companies, private equity (PE) firms tend to invest in mature companies that have stable and recurring cash flows which can be used to repay the debt taken on the leveraged buyout (LBO) over time (Kaplan & Strömberg, 2009). The literature states that problems of asymmetric information and adverse selection are key issues that banks consider when evaluating prospective borrowers and determining the terms of lending (Petersen & Rajan, 1994; Boot & Thakor, 2000). Previous studies on buyouts have shown that PE firms and targets address these challenges by developing strong relationships ...