Private equity sponsors and target firms’ performance: the role of previous experience and syndication

Syndication allows private equity sponsors to take over firms that would be overlooked due to lack of financial resources and/or skills. Skills come from experience, but the same amount of experience yields different skills based on specific past activity, leading to different outcomes. This study investigates the effect of different dimensions of sponsors’ experience on target firm’s operating performance in stand-alone and syndicated deals, controlling for selection bias. Findings indicate that different dimensions of experience matter; although stand-alone sponsors are more experienced, sponsors improve operating performance only within syndicates. Results are robust to another measure of operating performance and are useful for target firms, sponsors, and investors.