Shall we dance?: the rationale for leveraged buyout syndication

Syndicated investments are common in the private equity industry. This pa-
per examines how management team composition might influence LBO syndica-
tion decisions, and links both to performance. By using a unique hand-collected
dataset of 947 LBO investments, we show that investment size, geographic dis-
tance, and investor experience increase syndication likelihood. Besides, manage-
ment teams with engineers and MBA graduates are prone to syndication. More
specifically, Harvard MBAs tend to work with each other while Columbia MBAs
are more likely to syndicate with each other as well as with engineers. We
find a non-linear relationship between syndication and performance, probably
due to different inherent nature of deals. MBA graduates seem to affect perfor-
mance in non-syndicated deals, but not in syndicated ones. It thus suggests that
MBAs are good at pre-deal screening, and might further explain why they would
seek outside expertise when needed. Finally, we find that the strongest syndi-
cation match that enhances value is the "Harvard MBA-and-Harvard MBA"
pair. Hence, Harvard MBAs may syndicate with each other because a personal
acquaintance enables a better match of skills. For other teams, syndication is
likely for the purpose of diversification or future deal reciprocity.
Keywords: Leveraged Buyouts, Syndication, Top Management Teams