A Correlative Research On Private Equity And Cross-border M&A

The globalization of the world economy, internationalization of Chineseenterprises has become an irreversible trend. Driven by this trend, Cross-bordermergers and acquisitions are becoming an increasing proportion of global M&Amarket. The global economy has been hit hard by the financial crisis of2007, thusmany well-known companies went into a shortage of funds, and their stocking priceshave plunged. All that result in the release of the threshold for foreign investmententerprise requirements both in Europe and the United States. Which provides a rareopportunity for Chinese enterprises to go overseas. According toPricewaterhouseCoopers released "Global M&A market new trends-the rise ofemerging market investors," from2008to2012, overseas mergers and acquisitionsinitiated by Chinese companies have achieved the "five-fold increase in five years,"the total amount of investment has increased from$10.3billion to$65.2billion.In the past, the cooperations between Chinese companies and overseasenterprises are mostly achieved through trade channels. But with the development ofcross-border mergers and acquisitions, PE, acting as capital ties, are becoming animportant role in the M&A transactions. Some successful cross-border mergers andacquisitions are achieved with the hidden heros, that is PE firms. For example,Lenovo’s acquisition of IBM PC division with the assistance of TPG, NewbridgeCapital, etc.; the acquisition of German Putzmeister Sany helped by CITIC IndustrialFund; the acquisition of CIFA together with Hony Capital, Goldman Sachs andManda Lin; and Belle taking control of CDH Baroque Japan assisted by MorganStanley.In practical fields, private equity and Chinese enterprises go hand in hand aim togo overseas. While the correlative research on private equity and cross-border M&Ahas rarely been studied. In the future development of China’s economy, theinternationalization process of Chinese companies will become more quickly. Sincethe PE firms will become increasingly prominent, an accurate grasp o f PE’s role incross-border mergers and acquisitions is particularly important.This paper is aimed to contribute to the understanding of the ways in whichcross-border transactions can be facilitated. In our analysis, we focus on one possible channel, namely the role of PE firms. Therefore, this paper started with the status quoof China’s cross-border mergers and acquisitions. According to the basic features ofChina’s cross-border mergers and acquisitions, we found that PE firms are helpingpromoting cross-border mergers and acquisitions. To capture the mechanism throughwhich PE firms facilitate cross-border mergers and acquisitions, this paper selects4A-share listed companies which have launched the cross-border transactions from2009to2012as samples. Firstly, we apply short-term event study on the wealth effectof corporate mergers and acquisitions, and found cross-border mergers andacquisitions can create value for the bidders. Based on the results of the event studymethod, we establish multiple linear regression equation to study the roles of PE firmsin cross-border M&As. The empirical results show that, takeovers involved of privatehave higher announcement returns; PE participation helps reduce the time to completea deal; in private companies, the deal value of the M&A is positively related to theinvolvement of PE firms.This paper is divided into five parts, the first part is an introduction to elaboratethe research background, purposes and its meanings, then introduces the studyroutine and methods, and presents its innovations and shortcomings. The second partis the literature review, first introduces the concepts of private equity funds and thecross-border M&A performance, then sorts out the theoretical results and conduct abrief review. The third part is the theoretical basis and hypotheses, According to thecore motivation and specific strengths owned by private equity funds involving incross-border mergers and acquisitions, together with asymmetric information theorywe put forwards two hypotheses of this paper. The fourth part is the empirical analysis.Firstly, we carry on short-term event study on China’s A-share listed company’sshort-term performance of cross-border mergers and acquisitions. And based on thestudy results, we perform linear regression to study the relations between PE firmsand cross-border M&A The fifth part is the conclusion of this paper,mainly to make asummary of the full text, and to make some suggestions accordingly. At last, itexplains the limitations of this article and future research directions.