Paul Nary

Paul Nary (2024), Do Corporations Benefit from Divesting to Private Equity Acquirors? An Empirical Investigation, Strategic Management Journal.

Abstract: Research Summary: From the perspective of the divesting firm, do divestitures to private equity (PE) acquirers perform differently from divestitures to corporate acquirers? If so, why? This question-based, empirical study shows that on average, divestitures to PE acquirers correlate with lower divesting firms’ shareholder returns than divestitures to corporate acquirers. The study explores whether these lower returns when divesting to PE acquirers are explained by the differences in PE acquirers’ distinct value creation strategies when it comes to target selection, ownership, or transaction timing. The results reveal that divesting firms’ lower shareholder returns when divesting to PE acquirers are more likely correlated with differences in value creation by PE acquirers due to their distinct ownership and transaction timing strategies, but not their selection strategies. Managerial Summary: Private equity (PE) firms are prominent buyers of corporate divestitures, and PE firms’ strategies for creating value when acquiring divested businesses tend to differ from those of corporate buyers. Yet the performance implications, from the perspective of the divesting firm, of divesting a business to a PE acquirer versus a corporate acquirer are not clear. In this study, I explore the differences in returns to firms divesting to PE acquirers versus those divesting to corporate acquirers. First, on average, divesting firms’ returns are lower when divesting to PE acquirers. Second, these lower returns are more likely to occur when the PE acquirer may be expecting to create less value, or when firms choose to divest at a suboptimal time.

Paul Nary and Aseem Kaul (2023), Private Equity as an Intermediary in the Market for Corporate Assets, Academy of Management Review.

Abstract: We examine the role of non-venture private equity (PE) firms as intermediaries in the market for corporate assets. We argue that in order to create and capture value by acquiring established businesses and selling them to corporate buyers, PE firms must possess at least one of three potential advantages: they must be able to identify businesses that are currently undervalued (valuation advantage), they must be able to enhance the intrinsic value of the business (governance advantage), or they must be able to match the business to a more synergistic corporate owner than is immediately available (timing advantage). We discuss why, and under what conditions, PE firms may thus have an advantage in buying, owning, and selling businesses, and derive a set of propositions predicting which targets PE firms are most likely to pursue. Our study thus offers a comprehensive yet contingent theory of non-venture private equity, developing an integrated value-based framework to explain this important and growing phenomenon. In doing so, we also offer new insights into the role of intermediaries in strategic factor markets, especially the market for the buying and selling of businesses.

Aseem Kaul, Paul Nary, Harbir Singh (2018), Who Does Private Equity Buy: Evidence on the Role of Private Equity from Buyouts of Divested Businesses, Strategic Management Journal, 30.

Abstract: We examine the role of nonventure private equity firms in the market for divested businesses, comparing targets bought by such firms to those bought by corporate acquirers. We argue that a combination of vigilant monitoring, high‐powered incentives, patient capital, and business independence makes private equity firms uniquely suited to correcting underinvestment problems in public corporations, and that they will therefore systematically target divested businesses that are outside their parents’ core area, whose rivals invest more in long‐term strategic assets than their parents, and whose parents have weak managerial incentives both overall and at the divisional level. Results from a sample of 1,711 divestments confirm these predictions. Our study contributes to our understanding of private equity ownership, highlighting its advantage as an alternate governance form.

Description: Private equity firms are often portrayed as destroyers of corporate value, raiding established companies in pursuit of short‐term gain. In contrast, we argue that private equity investors help to revitalize businesses by enabling investments in long‐term strategic resources and capabilities that they are better able to evaluate, monitor, and support than public market investors. Consistent with these arguments, we find that when acquiring businesses divested by public corporations, private equity firms are more likely to buy units outside the parent's core area, those whose peers invest more in R&D than their parents, and those whose parents have weak managerial incentives, especially at the divisional level. Thus, private equity firms systematically target those businesses that may fail to realize their full potential under public ownership.

Paul Nary (Work In Progress), Borrow and Buy: Complementarity and Substitutability of Acquirer’s Alliances and Technology Acquisitions.

Paul Nary and Aseem Kaul (Working), The Best of Both Modes: Using Transaction Portfolios to Capture Resource Complementarities.

Sunasir Dutta and Paul Nary (Work In Progress), People or Place? The Fungibility of Embeddedness in Entrepreneurial Ventures.

Paul Nary (Draft), Strategy, Technology, and Acquisitions: Through the Lens of Control Data Corporation in 1958-1972.

Paul Nary (Work In Progress), Networks, Alliances, Investments, and Acquisitions: Role of Social Embeddedness in Acquirer Performance.