When do managers seek private equity backing in public-to-private transactions?

Since the late 1990s, the going private market has experienced a considerable boom in size and also has attracted private equity investors that are looking to partner with incumbent management. This offers managers the choice to take the firm private themselves in a traditional management buyout or to seek private equity backing. We propose that managers decide for a management buyout without any involvement of private equity in case they are less financially constrained: when their firms are under- valued, have high cash levels, are smaller and less financially visible, and the managers own a large toehold. Our analysis on a sample of UK public-to-private transactions completed over the period 1997-2003 supports these predictions. In addition, a post going private performance analysis reveals that both management buyouts and private equity backed deals overperform their industry peers. A striking difference between the two types of deals is that private equity backed deals overperform their peers already before the deal takes place whereas management buyouts are comparable to industry peers before going private and improve performance afterwards. These findings sug- gest a passive role for private equity firms and highlight their selection rather than treatment role.