Winning a Deal in Private Equity: Do Educational Networks Matter?

In this paper, we investigate the role of educational ties in private equity. Although we cannot observe all the funds that bid for a target company, we construct the set of potential bidders based upon their size and investment cycle, as well as the location and sector of their target companies. By gathering detailed educational histories of fund partners and CEOs of target firms, we find a significantly higher incidence of educational ties in completed deals than exists among the set of potential bidders. We argue that educational ties between fund managers and CEOs of target companies play a (positive) role in sourcing deals and winning competitive transactions. The alma maters of CEOs and private equity partners are notably concentrated among the top universities, and we find that exclusivity of educational ties is important. However, we find no evidence that such educational ties produce higher returns for investors.