Power Plays and Paydays: Examining the Effect of Political Influence on Private Equity Exits

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The Wharton School::Wharton Undergraduate Research::Joseph Wharton Scholars
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Business
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Political Influence
Private Equity
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2023
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Spencer, Kate
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Abstract

The intersection of alternative asset managers and political connectedness has yet to be examined thoroughly. Often, private equity firms reap the positive effects of lobbying efforts in major buyouts, whether it be through antitrust concern mitigation, favorable industry regulation, accessible or discounted credit, lax financial reporting oversight, and more. While industry-wide returns have been quite strong in recent years, regulators have started to target a number of drivers that have created such returns, such as increased oversight of PE rollups, high-growth, oligopolistic industries such as technology and healthcare, and special purpose acquisition companies (SPACs). This paper will investigate the relationship between the time and value of PE exit transactions in the United States between 2018 and 2022 and the degree to which the firms involved are politically connected. Firm political influence is determined true if at least one individual at a firm is affiliated with or has worked for a government official or agency, or has served as one themselves. The study conducted found that on average, transactions involving connected firms take longer and are of higher value. Adjusted transaction duration (normalized for transaction value) was generally higher annually and by industry for connected transactions, but only showed a significant difference in 2022. Adjusted transaction duration is likewise significantly higher for connected financial services transactions overall, and for financial services, retail, and technology transactions in 2022. The study hypothesizes that this difference in transaction length - peaking in 2022 and specifically limited to financial and tech sectors - is largely due to the involvement of SPACs in PE exits and the higher disclosure they require for politically connected transactions. Possible applications for such insight could inform connected PE firms on decisions around buyout return levers, notably avoidance of regulatory oversight and antitrust regulation in exits.

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2023-12-01
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