Mergers and acquisitions (M&A) are a massive component in global financial activity, amounting to perhaps $5 trillion in activity in 2015 alone.  With such a large dollar volume, some analysts (mostly academics) wonder why a large portion of studies on M&A activity show very little financial gain to the acquiring firm from their M&A activity.

ma Source: IMF

Why is there so much M&A activity happening when there is potentially little to no financial gain?  Well, one answer might be that virtually all of the academic studies on the topic rely on data reported by public acquirers versus data from both public and private acquirers.

What do the results look like when a distinction is made between private acquirers and public acquirers?  In an interesting new study, a couple of professors provide some answers.  Here is a look at a fascinating recent study from a couple of professors out of the University of Toronto and the Shanghai Jiao Tong University (Andrey Golubov and Nan Xiong).

The Data

The authors employ data on U.S.-based firms’ M&A activity from the Capital IQ database.  In a bit of uniqueness, in the U.S., private firms that have $10 million or more in total assets and 500 or more shareholders must file with government regulators.  Private companies may also list their securities with the U.S. Securities and Exchange Commission.

The authors collected data on leveraged buyouts by public and private firms from 1997 to 2010.  A summary of their results follow.

The Findings

In the following table are the results.  Interestingly, there is a large difference between the financial returns of private companies compared to public companies.  The Return on Assets (ROA) difference is an astonishing 5.77% compared to -0.88% from one year before acquisition to two years thereafter.  Many of the results are statistically significant to at least the 95% level.

table3 Source: Golubov and Xiong

Why Would This Outcome Show Up?

A number of possible reasons might explain the difference in returns between private acquirers and public acquirers.  Perhaps the strongest reasons might be that private firms lack the problem of dispersed ownership and posses a lower challenge on the connection between ownership and management.


The interesting results – still to be confirmed by other studies – suggest that there is certainly something to the long-debated issue on concentrated ownership and dispersed ownership. We will be watching to see whether future research will corroborate  Golubov’s and Xiong’s results.  If substantiated, it suggests the private equity world perhaps has some adjustments to make.


Every year Job Search Digest reviews what happened with private equity cash compensation.  Would you guess cash earnings went up or down in 2016?  What percentage of earners made more than $1 million?  How many made less than $50,000?  Here’s a look.

The 2015 Picture

Before going into the 2016 results (the report’s entire results are available for purchase), here’s a look at how things looked in 2015.

In 2015, about 1% of respondents made over $1 million, while 6% made between $500,000 and $1 million, 18% made between $300,000 and $500,000, and 11% made between $250,000 and $300,000.

On the other end about 15% made between $200,000 and $250,000, about 20% made between $150,000 and $200,000, about 18% made between $100,000 and $150,000, about $10% made between $50,000 and $100,000, and only 1% made less than $50,000.

2015CashEarnings Source: Job Search Digest’s Private Equity & VC Compensation Report

The 2016 Picture

Shifting now to the 2016 picture, here’s that look.

Overall, about 1% of respondents said they made more than $1 million in 2016, about 8% of respondents said they made $500,000 to $1 million in 2016, about 23% of survey participants indicated they made between $300,000 and $500,000, about 11% made between $250,000 and $300,000, and 15% made between $200,000 and $250,000.

On the so-called lower end of the private equity earnings spectrum, about 20% of respondents said they made between $150,000 and $200,000, about 15% made between $100,000 and $150,000, and about 7% said they made between $50,000 and $100,000.  Not bad compared to pretty much any other industry.

2016CashEarnings Source: Job Search Digest’s Private Equity and VC Compensation Report

What Changed from 2015 to 2016?

With 2015 and 2016 both addressed, here’s a look at the difference.

Interestingly, a full 40% of survey participants said they made between 0 to 15% more than in 2015, while 28% of respondents indicated they made about the same in 2016 as in 2015.  Perhaps surprisingly – because of how low the figure is given the lumpy nature of private equity pay – only 7% of respondents said they made less in 2016 than in 2015.  About a fourth of respondents (24%) said they made 16% to 100% more in 2016 than in 2015.  Overall, 2016 was kind to the private equity industry.

Perhaps the biggest surprise from the report is how many survey participants indicated they made more than double in 2016 than in 2015.  Fascinatingly, only 1% of respondents made double what they made in 2016 compared to 2015.  Remember, the list of people responding to Job Search Digest’s report included many partners and other high level executives.  Perhaps a little disappointing on the high end of the spectrum, although if you’re lucky enough to be working in the private equity industry and earning average pay, you probably won’t get much sympathy from the average wage earner making $14 per hour.

HowThingsChanged Source: Job Search Digest’s Private Equity and VC Compensation Report



In a look at what’s going on with private equity earnings, Job Search Digest’s results indicate that about 65% of respondents made more in 2016 than in 2015, about 28% made the same as in 2015, and only about 7% made less in 2015 than in 2016.

Perhaps even more surprising is how many didn’t make $1 million or more.  Only about 1% of Job Search Digest’s survey participants made $1 million or more.  Only 1%!  Interestingly, about 43% made more than $250,000, while only about 16% of survey respondents made less than 22%.  All in all, it’s a good time to be employed in the private equity industry.


This year is off to an interesting start.  Markets are hanging around all-time highs and the global economy looks to be re-accelerating.  Will private equity follow suit?

Private equity research firm Pitchbook recently released their perspective on what 2017 has in store.

Global Deal Value and Transaction Counts

The 2016 year ended in a state of healthy, but cooling conditions.  Global deal value, measured in dollars, declined slightly from 2015 values to $649 billion.  That represents a decrease in deal value of about 12%.

On the transaction front, the number of deals declined from 4,131 in 2015 to 3,538 in 2016, or a decline of about 14%.  The fact that the number of deals declined more than deal value indicates that valuations are still on the rise.

What does Pitchbook see for 2017?  Generally, more of the same – meaning a healthy, but at times frothy, private equity deal market.  They don’t see a recession or any big increase or decrease in deal value or transactions, contrary to what some prognosticators see occurring in 2017.

Deal1 Source: Pitchbook


U.S. PE-Backed Companies

What about the overall state of the industry?  Will it continue to expand?  Pitchbook seems to think so, and the following graphic confirms that continued growth in companies backed by private equity is most likely to be the case.

Over the past 11 years, the number of U.S. private equity-backed companies has grown from 3,043 in 2005 to a high of 7,168 in 2016.  Fascinatingly, of the 7,168, almost all of the companies (shown in the right column in green) were backed in the 2011 to 2016 years.  The industry has grown, and looks like it will continue to grow at healthy rates in the coming years.

pe backed companies Source: Pitchbook

What Private Equity Sectors Might be a Little Frothy?

Presuming a backdrop of overall healthiness, which private equity sectors might be a little frothy?  Well, take a look at the following chart from the same Pitchbook report.  The figure shows the recent boom in the information technology (IT) and growth in the energy sectors.

In orange is the IT sector.  Overall, the number of deals closed continued to expand in 2016, going from 551 in 2015 to 567 in 2016.  Value exploded, going from around $75 billion in 2015 to around $150 billion in 2016.

The energy sector was not “as booming”, going from 210 closed deals in 2015 to 213 deals in 2016.  Value in the sector increased by a stronger margin, going from around $40 billion to around $50 billion.

All in all, 2016 was a good year to be a private equity-backed company.

What does 2017 portend?  Probably more of the same.  Perhaps some cooling in the IT sector, but no falling off a cliff – or perhaps not any cooling at all.

it value Source: Pitchbook


Overall, 2016 was a healthy year for the private equity industry.  If early indications are correct, 2017 looks to be more of the same – healthy business conditions, but not bubbly or recessionary.  Just healthy.  For the foreseeable future, it looks like it’s a good time to be in the private equity industry.


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