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Using a large sample of block share acquisitions made by private equity (PE) funds over the 1990 to 2006 period, we examine the sources of value gains in PE minority equity investments. We find that compared to non-PE acquirers, PE acquirers are more likely to place representatives with finance experience on a target's board, particularly when the target performs poorly or when it has more pronounced agency problems. PE acquirers are also more likely to place representatives with experience in the target's industry on the target's board when the target has more complex operations (e.g., multiple segments or higher R&D intensity). The targets in PE acquisitions, particularly those whose boards have representatives from PE acquirers, realize both higher abnormal announcement returns and better post-acquisition operating performance than do targets in other types of acquisitions. Target announcement abnormal returns and post-acquisition operating performance are also higher when PE-appointed directors have expertise in the target's industry, when they sit on the boards of poorly performing targets, or when they sit on the boards of targets with higher R&D intensity. These findings suggest that the governance and operational engineering that PE acquirers apply to their targets constitutes important sources of value creation in PE minority equity investments, and that such value creation is particularly evident when the need for target oversight and/or advice is greater.

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