Too Many Cooks Spoil the Broth - the costs of Syndication in private equity

This research study adds to the literature on the hidden costs of syndication by identifying specific ways in which they may affect an individual deal’s performance, as envisioned in extant literature (Meuleman et al, 2009). The study also suggests a framework for the different stages of the investment lifecycle, which is another contribution to existing literature and provides a platform for further comparative research studies. Findings from this research study can have a significant impact on the private equity industry in India and outside India, by putting a spotlight on the costs side of managing syndicate PE deals and helping create awareness about the processes required to proactively manage them. This study will make PE fund advisories and PE firm managements aware of the need to differentiate their approach to the management of solo and syndicate deals, giving due regard to the sources of hidden costs.
This paper has significant managerial implications for PE fund managers. The findings may guide PE fund managers toward identifying and mitigating the sources of costs associated with syndication, based on the life cycle stage of the PE deal. This knowledge will allow them to employ internal measures such as using specialized skill sets for each stage of the PE deal lifecycle, as well as external measures such as tapping trusted syndication networks, staging investments, or innovating with newer types of syndicate structures (Casamatta and Haritchabalet, 2007; Ghemawat and Costa, 1993; Sharma and Tripathi, 2016; Gemson and Annamalai, 2015; Sen and Puranam, 2022).
This paper also offers directions for future research in the important domain of PE syndication. Future research may build on this study by tapping into a larger empirical sample size to validate this study’s findings and identify the drivers of costs of syndication and their impact on various measures of deal performance based on thematic, sectoral, and geographical nuances. Future studies may also study the impact of innovative types of syndicates formed other than with the traditional PE funds (Sen and Puranam, 2022), such as with corporate venture funds or passive family wealth funds, on the deal performance in private equity.