Fast Thinking in Private Equity: The Role of Heuristics in Screening Buyout Opportunities

This study utilizes a multiple case analysis to examine the decision-making processes surrounding buyout decisions of small-to-medium businesses. Qualitative data was generated from semi-structured interviews at twenty private-equity groups. Rather than relying on a retrospective review of prior decisions, we present decision-makers with teasers, a summary of an investment opportunity. Our results indicate that heuristics are utilized to guide selection and execution of buyout investments. We also uncover the role of affect: strong positive or negative responses to specific stimuli in the teasers. Furthermore, the use of heuristics has important implications in the sourcing of private equity for business owners.