Abstract
In a study of 1,322 private-to-private transactions the author finds support for the hypothesis that private equity (PE) firms play an important role as market makers. A number of empirical results support this claim. First, part of what PE firms do is to keep an inventory of firms on which they do little operational improvements. In cases where PE firms exit their investments in less than 18 months of ownership, so-called quick flips, no statistically significant operating enhancing measures are observed. As time passes, the probability that an asset is sold to an industrial buyer in a trade sale is reduced. Overall, the results suggest that PE firms hold a menu of firms which they keep available, first, to industrial buyers and, second, for other PE firms.