Abstract
The norm for a private equity firm is to view their portfolio of companies as three to five year investments. However, sometimes a company is divested already after less than 18 months of ownership in a so called quick flip. Starting from established results in the academic literature on related themes, I contrast three hypotheses that might explain what drives quick flips; are quick flips the result of a speedy restructuring process, related to debt market conditions or driven by conflicts of interest between the limited and general partners of the private equity fund. 1,322 private-to-private transactions that took place over the period 1998 to 2008 are examined. Of these transactions, 188 were exited in less than 18 months after being added to the private equity firm portfolio. I find that quick flips do not follow upon operational improvements of the company, private equity firms are neither more likely to sell a company in a quick flip due to liquidity constraints nor do they earn relatively higher returns in these transactions compared to others. In addition, I find that as time passes by, the probability that a company is sold to an industrial buyer in a trade sale is reduced. Whereas these results offer little support for the debt market and the fast restructuring hypotheses, they do support the arguments that quick flips may stem from contractual conflicts of interests between investors and private equity managers.