Private Equity Investment and Mergers and Acquisitions: Empirical
Research on Big Data Based on Small and Medium Enterprise Board
and Growth Enterprise Market
Zaixin Ji and Xuedong Chen*
School of Economics and Management, Beijing Jiaotong University, No.3, Shangyuancun, Haidian District, China
Keywords: Private Equity Investment, M & a and Restructuring, M & a Performance, M & a Payment Method.
Abstract: It has become easy and common to introduce private equity investment when Chinese listed companies con-
duct mergers and acquisitions. Private equity investment can help listed companies better understand and
apply mergers and acquisitions. This paper selects 387 M&A transactions of all listed companies on China's
SME board and GEM in 2017-2021 as the big data samples for empirical research. This research uses the
ordinal logistic regression model as the main analysis tool, using CITC analysis algorithm α The coefficient
algorithm was used to test the reliability and validity of the measurement scale, and the joint significance test
was used to verify the effect of each variable. The study found that when companies introduce private equity
investment institutions as shareholders, they will have a positive response to the performance of mergers and
acquisitions. At the same time, the increase in the shareholding ratio of private equity investment in mergers
and acquisitions also has a positive response to the performance of mergers and acquisitions. When private
equity accounts for a large proportion in the acquirer's enterprises, the response of M&A performance is
positive, which will promote the improvement of the company's excess return rate. When private equity in-
vestment is introduced into the acquirer company, the priority of payment methods is mixed payment, cash
payment and stock payment.
1 INTRODUCTION
1.1 Background
According to China's M&A market data released by
the my country Investment Research Institute in
2021, a total of 2,782 M&A transactions were con-
cluded in the Chinese M&A market, a year-on-year
increase of 5.26%. Among them, only 2,322 disclosed
the transaction value, but the total amount of mergers
and acquisitions of 252.1 billion US dollars was
reached last year. Although private equity investment
has participated in a large number of mergers and ac-
quisitions by the acquirer, the role of PE in corporate
mergers and acquisitions is not clear. This paper in-
tends to carry out research on this, taking GEM and
SME board listed companies as the research object,
and examining the impact of PE as the major share-
holder of the acquirer on M&A behavior, market val-
uation and business performance, including the
choice of M&A payment methods, and the causes of
M&A events. market response and changes in com-
pany performance before and after mergers and ac-
quisitions, so as to make judgments about the role of
PE in company mergers and acquisitions.
1.2 The Research Status
The definition of private equity investment is not pub-
licly traded on stock exchanges to raise and trade
funds (Barber, Brad M, Yasuda, et al, 2017). Foreign
studies have concluded that private equity investment
is characterized by high investment risk, but with high
income potential. [2]. According to the definition re-
port of the Federal Reserve Board, the private equity
investment market is compared with others, and its
high professional quality and professional manage-
ment ability are obtained, and its main investment ob-
jects are some unlisted companies for financing activ-
ities (BoneWinkel, Pfeffer, 2006), the specialization
specifically referred to here has gradually adapted to
the market and even promoted the market after the
practical test of long-term capital market economic
Ji, Z. and Chen, X.
Private Equity Investment and Mergers and Acquisitions: Empirical Research on Big Data Based on Small and Medium Enterprise Board and Growth Enterprise Market.
DOI: 10.5220/0011742000003607
In Proceedings of the 1st International Conference on Public Management, Digital Economy and Internet Technology (ICPDI 2022), pages 485-490
ISBN: 978-989-758-620-0
Copyright
c
2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)
485
activities. Shi 's point of view is that private equity
investment mainly has the following effects on the
merger and acquisition of the acquirer, which are sup-
ported by sufficient cash flow, attracting individual
investors with high returns, and significantly reducing
the merger and acquisition risk of the acquirer's en-
terprise. Reduce (Osuri, 2010). Luo 's point of view is
that with the increase in the shareholding ratio of pri-
vate equity in the acquirer, the M&A performance
will also increase, but it will not affect the business
performance of the company. (Boone, Broughman,
Macias, 2018) The article published by Broughman
and Fried first mentioned that private equity invest-
ment institutions promote the successful completion
of mergers and acquisitions mainly through positive
incentives, and share their own benefits in mergers
and acquisitions; Repurchase, thus affecting the daily
cash flow of the company, and the forced merger was
successfully completed (Yu, Luo, 2016). Thompson
and Richard believe that private equity investment
can also introduce advanced management experience
and technology to further promote the integration of
acquirer companies (Shi, 2007). Stephan, Torsten and
Harald believe that the involvement of private equity
investment can not only improve the quality of cash
flow but also improve the quality of company man-
agement (Stephen, 1998). Wright and Gilligan found
that private equity investment will further participate
in the daily operation and management of the com-
pany, improve the company's overall governance
level, improve the company's daily turnover effi-
ciency and comprehensive competitiveness.
(Bencivenni, Simone, Murtas, et al., 2002) Metrick
and Ayako found that firms backed by private equity
investments promote more reasonable ownership
structures.( Ghezzi, Mocci, 2012)
1.3 Research Hypothesis
(1) The impact of mergers and acquisitions supported
by private equity investment on the improvement of
merger and acquisition performance The advantages
brought by the shareholding of private equity invest-
ment institutions not only bring various benefits to the
acquisition of equity, but the influencing factors are
also related to the withdrawal of private equity invest-
ment. Strategies are closely related, so they have good
reasons for active, effective and rigorous oversight of
the board (Cotter and Peck, 2001). As a result, Hy-
pothesis 1 is proposed:
H1: Compared with the mergers and acquisitions
carried out by the mergers and acquisitions of the
mergers and acquisitions without private equity in-
vestment shares, the mergers and acquisitions of the
mergers and acquisitions of the mergers and acquisi-
tions of the private equity investment shares will
bring better merger and acquisition performance.
(2) Differences in the impact of private equity ra-
tio on M&A performance Bottazzi and Hellmann
(2008) concluded through empirical research that the
larger the shareholding ratio of private equity invest-
ment institutions in the acquirer’s company, the more
likely the acquirer’s company will be in the process
of M&A and reorganization. The influence of the
company also increases, and then it can participate in
the daily operation and high-level management activ-
ities of the invested company to a greater extent, so as
to add more value to its equity during mergers and
acquisitions. Therefore, Hypothesis 2 is proposed:
H2: The larger the shareholding ratio of private
equity investment in the merger and acquisition of the
acquirer, the better the effect of M&A and reorgani-
zation.
(3) Differences in the impact of private equity on
M&A payment methods The article published by An-
driosopoulos and Yang mentioned that the large sam-
ple analysis concluded that the acquirer will use stock
and cash to meet the needs of M&A and reorganiza-
tion transactions when conditions permit. Therefore,
in most cases, private equity investment will be more
inclined to mixed payment than cash payment under
the ownership of the acquirer's enterprise. Therefore,
Hypothesis 3 is proposed:
H3: Private equity investment institutions are
most inclined to mixed payment in terms of M&A
payment methods of the acquirer, and are the least in-
terested in stock payment, and cash payment is mod-
erate.
2 STUDY DESIGN
2.1 Data Sources
This paper takes the mergers and acquisitions events
initiated by companies on the GEM and SME boards
from 2017 to 2021 as a sample, and chooses the GEM
as the research object because: On the one hand, the
GEM companies are smaller in scale than the main
board, and they often face financing difficulties be-
fore listing. , the capital demand for PE is higher; on
the other hand, GEM companies are more high-tech-
intensive, and more need PE to cultivate professional
managers related to the company's business, so GEM
companies are more inclined to introduce PE in the
growth process , and is more likely to be affected by
it. The screening criteria for M&A events are as fol-
lows: (1) The types of mergers and acquisitions are
ICPDI 2022 - International Conference on Public Management, Digital Economy and Internet Technology
486
asset acquisition, tender offer and merger by absorp-
tion; (2) If the company has multiple mergers and ac-
quisitions in a quarter, only the first one is taken as a
research sample; (3) The transaction is successful; (4)
The first announcement date, payment method, trans-
action scale and other information are complete, and
finally 387 M&A events were obtained. The data of
PE is collected manually by referring to the method
of Wang et al. The prospectus is checked to determine
whether there are private equity investors holding
shares in the company. Information about sharehold-
ers can be obtained from the "Basic Information of
the Issuer" in the prospectus. This part introduces the
shareholders' information. The share capital compo-
sition determines whether there is PE involvement be-
fore the company's merger. All other data are from the
CSMAR database.
2.2 Model and Variable Design
1. The explanatory variable of private equity invest-
ment research on M&A performance: The explana-
tory variable of model 1 and model 2 is M&A perfor-
mance, which is represented by the cumulative excess
return CAR. The window period selected here is
around the date of the first M&A announcement. 30
days, as a surrogate variable to test the research ques-
tion of this paper. Explanatory variables: Whether
there is a dummy variable of private equity invest-
ment and the shareholding ratio of private equity are
selected as explanatory variables. Control variables:
the total proportion of shares held by the largest
shareholder in the year before the acquirer company
participated in the M&A and reorganization (TOP1),
the acquirer company participated in the M&A and
reorganization in the previous year’s return on equity
(ROE), and the acquirer company participated in the
M&A and reorganization in the previous year. One-
year asset-liability ratio (FinLev), the acquirer's free
cash flow (FCF) in the previous year, the acquirer's
main business revenue growth rate (Mincmgrrt) and
company size in the year before the acquirer's partic-
ipation in the M&A, and the company's scale is se-
lected here. The logarithm of total assets (SIZE) and
the type of merger and acquisition of the company in
the previous year before participating in the merger
and acquisition. Here, whether the two sides of the
merger and acquisition are in the same industry is
used to represent (SAME) horizontal merger is 1, oth-
erwise it is 0, and the payment method (Y) is used as
a control variable. and the payment method (Y) cho-
sen by the M&A as a control variable, with numbers
1, 2 and 3 representing stock, cash and hybrid pay-
ments, respectively. Model (1) Regarding the re-
search on the impact of private equity participation on
M&A performance, model 1 is established as follows:
CAR [-30, 30]=β
0
+β
1
PE +β
2
ROE +β
3
FinLev
+β
4
TOP1+β
5
FCF +β
6
Mincmgrrt +β
7
SIZE +β
8
SAME
+β
9
Y+ε (1)
Model (2) Research on the impact of private eq-
uity ratio on M&A performance. On the basis of
model 1, the dummy variables of private equity in-
vestment are replaced with equity ratio variables, and
model 2 is established as follows:
CAR [-30, 30]=β
0
+β
1
PRO +β
2
ROE +β
3
FinLev
+β
4
TOP1+β
5
FCF +β
6
Mincmgrrt +β
7
SIZE +β
8
SAME
+β
9
Y+ε (2)
2. The research on the influence of private equity
investment on the payment method of M&A is ex-
plained variable: the explanatory variable of model 3
is the payment method of the acquirer participating in
the merger and acquisition, using Y is an unobserva-
ble latent variable, x represents the explanatory vari-
able, and β is the corresponding. The coefficient to be
estimated, e is the error term. The observed value of
Y has the following three values: y = 1 (stock pay-
ment), y = 2 (cash payment), y = 3 (mixed payment).
Explanatory variable: In model three, choose private
equity The presence or absence of investment is used
as an explanatory variable to explain the model. Con-
trol variables: the total proportion of shares held by
the largest shareholder in the year before the acquirer
company participated in the M&A and reorganization
(TOP1), the acquirer company participated in the
M&A and reorganization in the previous year’s return
on equity (ROE), and the acquirer company partici-
pated in the M&A and reorganization in the previous
year. One-year asset-liability ratio (FinLev), the ac-
quirer's free cash flow (FCF) in the previous year, the
acquirer's main business revenue growth rate (Minc-
mgrrt) and company size in the year before the acquir-
er's participation in the M&A, and the company's
scale is selected here. The logarithm of total assets
(SIZE) and the type of merger and acquisition in the
year before the party company participated in the
merger and acquisition. Model (3) In order to explore
the impact of private equity investment on M&A pay-
ment methods, the research line of this model is to
study the preference degree that private equity invest-
ment should select for three payment methods under
the ownership of the acquirer. The third model is es-
tablished as follows:
y= xβ+ e, e | x ~ logit (0, 1) (3)
Private Equity Investment and Mergers and Acquisitions: Empirical Research on Big Data Based on Small and Medium Enterprise Board
and Growth Enterprise Market
487
3 EMPIRICAL ANALYSIS
3.1 Descriptive Statistics
Figure 1: Descriptive Statistics(owner-draw).
2017.1.1-2021.12.31 A total of 387 companies on the
SME board and ChiNext participated in mergers and
acquisitions as acquirers, including 57 companies
backed by private equity and 330 companies without
private equity support. The descriptive test results of
listed companies on the SME board are shown in the
table above. Table 4-2 lists the relevant variables
adopted in this merger. In the research sample of this
paper, there are 21 pure stock payment, 60 mixed pay-
ment, and 306 pure cash payment; the average value
of PE is about 0.14, which reflects the introduction of
private equity investment by the acquirer in all M&A
events. The overall proportion is about 15%; for the
selection of control variables, the average size of en-
terprises is about 21.34, of which the extreme differ-
ence is large; in the M&A transaction market of the
small and medium-sized board and the ChiNext, the
average asset-liability ratio Finlev is about 0.37, The
average ROE of the return on equity is about 0.09,
and the average free cash flow FCF is negative, indi-
cating that most of the GEM and companies are in
good financial condition but the degree of free cash
flow is poor; the shareholding ratio of the largest
shareholder is 0.41, indicating that in the sample The
management rights of the largest shareholder in the
company are relatively concentrated; the maximum
growth rate of the main business income is 82.70%.
The growth vitality of the entire small and medium-
sized board and the ChiNext board is relatively high,
and the development potential of the company is rel-
atively large. When private equity institutions invest
More screening and judgments are needed; at the
same time, the average number of payment methods
chosen by the acquirer companies is close to 2 and the
variance is small, so they still choose a large number
of cash payments; the proportion of horizontal mer-
gers and acquisitions in the entire sample reached
53%, indicating that companies have more choices
Horizontal mergers and acquisitions expand their
market share and accumulate energy for the next step
of development and growth.
3.2 Empirical Analysis
1) Regression analysis for model one
Figure 2: Model-One Logistic Regression(owner-draw).
CAR[-30,30]=-0.052+0.213PE+0.179ROE-
0.963FinLev+0.108TOP1-6.68e-14FCF-
0.001MINCMGRRT-
0.013SIZE+0.106Y+0.123SAME+ε (4)
According to the results of the table, through the re-
search on all domestic SME board and GEM M&A
events in the past five years, model 1 is used. When
the explanatory variable of whether there is private
equity investment in the acquirer's enterprise, the re-
gression analysis shows that the R2 value is 0.1039,
It shows that the overall fitting degree of model 1 is
good, and the experimental results have reference
value. Checking the T value shows that at the 5% sig-
nificance level, the cumulative excess return CAR is
significantly correlated with the acquirer's return on
equity in the previous year, and the asset-liability ra-
tio in the previous year is negatively correlated, espe-
cially the type of merger and payment method The
relationship is obvious, and the company's profitabil-
ity and M&A performance have no obvious relation-
ship with other control variables. The reason for the
control variable is that a reasonable payment method
can avoid the crisis of the company's daily operating
cash flow, and a successful horizontal merger can
save the production cost of the company and improve
the performance of mergers and acquisitions. Finally,
the conclusion drawn from Model 1 is that private eq-
uity investment in SME and GEM acquirers will
ICPDI 2022 - International Conference on Public Management, Digital Economy and Internet Technology
488
bring about better M&A performance. The main rea-
son is that private equity investment institutions par-
ticipate as acquirers. After mergers and acquisitions,
the company usually has a target company integration
period of about one year. Even if the private invest-
ment institution has no long-term investment in the
acquirer’s company, it is only for the pursuit of short-
term interests, but in order to maximize the invest-
ment income of private equity investment. , during
the period of integrating the target company, there
will still be participation in the operation and manage-
ment of the acquirer's company.
2) Regression Analysis for Model Two.
Figure 3: regression analysis of model 2(owner-draw).
From the test results, the equation of model 2 is as
follows:
car[-30,30]=-0.223+4.437pro+0.232roe-
0.082finlev +0.102top1+1.70e-13fcf-
0.001mincgrrt-0.004size+0.094y+0.128same+ε (5)
It can be seen from the table that, through the re-
search on all sme board and chinext m&a events in
the past five years, the equation of model 2 is used.
When the private equity investment shareholding ra-
tio in the acquirer's enterprise is used as the explana-
tory variable, the regression analysis shows that the
value of r2 shows it is 0.1624. At the 5% significance
level, the return on net assets and the asset-liability
ratio of the acquirer in the year before participating in
the m&a and reorganization are significantly related
to the cumulative excess return car of participating in
the m&a and reorganization, but the asset-liability ra-
tio in the previous year showed a significant correla-
tion. Negative correlation, but these two variables do
not significantly affect the m&a performance of the
smes and chinext listed companies. Among them, the
proportion of private equity holdings is large to a cer-
tain extent, which can significantly improve the m&a
performance of listed companies. The main reason for
the above phenomenon is that the increase in the pro-
portion of shares held by private equity institutions in
the acquirer's enterprise has a negative impact on the
company's profitability. Said to be a major positive,
the greater the proportion of private equity investment
in the acquirer's enterprise, the stronger the ability to
dominate and influence the management. Combined
with the conclusions of model 1, it can be concluded
that private equity investment has a positive incentive
effect on the m&a performance of listed companies
on the sme board and the chinext board, and the ac-
quiring company is affected by private equity invest-
ment. Moreover, the larger the shareholding ratio of
private equity investment in the acquirer companies
in the sample, the better the m&a performance of the
m&a and reorganization of the sme board and the
chinext board.
3) logistic Analysis of Model Three
Table 1: Logistic analysis of model three(owner-draw).
(1) (2) (3)
PE 0.1328*** 0.1295** 0.1502**
(2.33) (2.29) (2.21)
FinLev
0.9169** 0.9935**
(2.27) (2.27)
ROE
-2.9795*** -3.0382***
(-3.09) (-3.14)
FCF
1.1206 1.3092
(1.19) (1.32)
TOP1
-0.0203
(-1.19)
Mincmgrrt
0.8692
(1.22)
SIZE 0.1129 0.0573 0.0711
(0.86) (0.36) (0.42)
SAME 0.1422 0.1032 0.0826
(1.02) (0.79) (0.81)
Pseudo R-
square
d
0.1106 0.1192 0.1248
LR statistics -246.13 -242.46 -240.23
N 387 387 387
Z values in parentheses, * * and * * * indicate signifi-
cant at 5% and 1% significance levels respectively
Through the logistic analysis of Model 3, we ex-
plore how the intervention of private equity invest-
ment affects the acquisition method selection prefer-
ence of the acquirer company. In Table 5-3, through
the regression analysis of model 3, in the results of
regression 1, only the variable private equity invest-
ment and the other two M&A characteristics are in-
troduced, and it is found that private equity invest-
ment is significant at the 1% level. Then introduce the
relevant corporate governance structure and financial
indicators respectively, and construct regressions 2
and 3. The regression results show that the influence
of private equity investment on the choice of payment
method is significant at a significance level of 5%.
Private Equity Investment and Mergers and Acquisitions: Empirical Research on Big Data Based on Small and Medium Enterprise Board
and Growth Enterprise Market
489
From this, it can be concluded that the overall prefer-
ence for the selection of the dependent variable Y is
1<2<3, that is, the method of mixed payment is the
most preferred, and stock payment is rarely selected,
and the payment in cash is more moderate and com-
mon. . The main reason for the above results is that in
order to maximize their own interests, private equity
investment institutions will actively intervene in the
M&A decision-making activities of the acquirer's
company to ensure the company's daily operating
cash flow while preventing its own equity from being
diluted. Choose a hybrid payment that is relatively
compromised in terms of method.
4 CONCLUSIONS
Through the above empirical test and analysis, we can
find that private equity investment has a positive and
positive role in promoting the M&A performance of
the invested companies after the merger. M&A per-
formance will also show a better level; the M&A per-
formance of companies invested by private equity
capital after M&A is significantly better than that of
companies without private equity capital support, and
the proportion of private equity holdings is positively
correlated with M&A performance; private equity in-
vestment In order to improve their own investment
returns, institutions will improve by choosing pay-
ment methods. The reason for the above phenomenon
is that private equity investment institutions have ma-
tured after years of development, and companies on
the small and medium-sized board and the ChiNext
board are highly active. Because private equity in-
vestment is highly specialized in management and su-
pervision, it can effectively improve the merger and
reorganization activities of enterprises. , and provides
a series of value-added services to help enterprises
improve the effect of mergers and acquisitions. Com-
pared with other variables, private equity investment
has a significant impact on the improvement of M&A
performance and the choice of M&A payment
method, indicating that private equity investment has
a more obvious effect on the optimization of corpo-
rate governance structure and has a strong influence
on corporate decision-making. Therefore, we believe
that the capital market should welcome the entry of
private equity investment with a more open and inclu-
sive attitude, and the improvement of quality should
be paid more attention by all parties than the increase
of quantity. The degree of specialization and the fur-
ther improvement of the quality of private equity in-
vestment institutions will promote the healthy and
stable development of my country's capital market.
REFERENCES
Barber, Brad M, Yasuda, et al. Interim fund performance
and fundraising in private equity.[J]. Journal of Finan-
cial Economics, 2017.
Gilligan J , Wright M . Private Equity Demystified: An Ex-
planatory Guide - 3rd Edition [M], 2008.
BoneWinkel, Stephan, Pfeffer T. OPPORTUNISTIC
REAL ESTATE INVESTMENT - WHAT CAN
PROPERTY DEVELOPMENT DO[J]. Eres, 2006.
Osuri, Laura, Thompson. Reform's Silver Lining? [J]. U.S.
Banker, 2010, 120(8):39-39.
Boone A, Broughman B, Macias A J . Shareholder approval
thresholds in acquisitions: Evidence from tender offers
[J]. Journal of Corporate Finance, 2018, 53.
Yu Jinsong, Luo Xuezhu. Private Equity Investment and
Corporate Growth: An Empirical Study Based on Chi-
na's 2009-2013 Growth Enterprise Market Data [J].
Journal of Guizhou University of Finance and Econom-
ics, 2016(1):10. (in Chinses)
Shi Tao. Research on the relationship between the alloca-
tion of control rights and business performance of listed
companies in my country [D]. Southwestern University
of Finance and Economics, 2007. (in Chinses)
Stephen C.P.M.S.Weisbach. Actual Share Reacquisition in
Open-Market Repurchase Program [J]. Journa I of Fi-
nance 1998.53(1): 313-333.
Bencivenni G, Simone P D , Murtas F , et al. Performance
of a triple-GEM detector for high rate charged particle
triggering[J]. Nuclear Instruments & Methods in Phys-
ics Research, 2002, 494(1-3):156-162.
Ghezzi C, Mocci A . Behavioral validation of JFSL speci-
fications through model synthesis[C]// IEEE. IEEE,
2012.
ICPDI 2022 - International Conference on Public Management, Digital Economy and Internet Technology
490
