Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies

Christian Riis Flor, Peter Norman Sørensen

Research output: Contribution to conference without publisher/journalPaperResearchpeer-review

Abstract

We characterize when private equity funds have a competitive advantage over strategic buyers in acquiring a target firm. Taking advantage of the skill to mitigate informational frictions, private equity funds cut lossmaking projects, potentially merge the target with similarly restructured firms, and exercise growth options. Instead, a strategic buyer integrates with the target to obtain a better competitive position. The private equity fi rm is more likely to win the takeover competition when information is costlier, its required return premium is smaller, and the strategic buyer’s synergy gains are smaller. Such takeovers by private equity funds improve economic welfare.
Original languageEnglish
Publication dateJan 2019
Publication statusPublished - Jan 2019
Event11th Annual Hedge Fund and Private Equity Research Conference - Paris, France
Duration: 17. Jan 201918. Jan 2019

Conference

Conference11th Annual Hedge Fund and Private Equity Research Conference
CountryFrance
CityParis
Period17/01/201918/01/2019

Fingerprint

Buyers
Discount
Private equity
Synergy
Friction
Economic welfare
Exercise
Premium
Competitive advantage
Growth options

Keywords

  • Corporate finance

Cite this

Flor, C. R., & Sørensen, P. N. (2019). Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies. Paper presented at 11th Annual Hedge Fund and Private Equity Research Conference, Paris, France.
Flor, Christian Riis ; Sørensen, Peter Norman. / Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies. Paper presented at 11th Annual Hedge Fund and Private Equity Research Conference, Paris, France.
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abstract = "We characterize when private equity funds have a competitive advantage over strategic buyers in acquiring a target firm. Taking advantage of the skill to mitigate informational frictions, private equity funds cut lossmaking projects, potentially merge the target with similarly restructured firms, and exercise growth options. Instead, a strategic buyer integrates with the target to obtain a better competitive position. The private equity fi rm is more likely to win the takeover competition when information is costlier, its required return premium is smaller, and the strategic buyer’s synergy gains are smaller. Such takeovers by private equity funds improve economic welfare.",
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Flor, CR & Sørensen, PN 2019, 'Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies' Paper presented at, Paris, France, 17/01/2019 - 18/01/2019, .

Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies. / Flor, Christian Riis; Sørensen, Peter Norman.

2019. Paper presented at 11th Annual Hedge Fund and Private Equity Research Conference, Paris, France.

Research output: Contribution to conference without publisher/journalPaperResearchpeer-review

TY - CONF

T1 - Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies

AU - Flor, Christian Riis

AU - Sørensen, Peter Norman

PY - 2019/1

Y1 - 2019/1

N2 - We characterize when private equity funds have a competitive advantage over strategic buyers in acquiring a target firm. Taking advantage of the skill to mitigate informational frictions, private equity funds cut lossmaking projects, potentially merge the target with similarly restructured firms, and exercise growth options. Instead, a strategic buyer integrates with the target to obtain a better competitive position. The private equity fi rm is more likely to win the takeover competition when information is costlier, its required return premium is smaller, and the strategic buyer’s synergy gains are smaller. Such takeovers by private equity funds improve economic welfare.

AB - We characterize when private equity funds have a competitive advantage over strategic buyers in acquiring a target firm. Taking advantage of the skill to mitigate informational frictions, private equity funds cut lossmaking projects, potentially merge the target with similarly restructured firms, and exercise growth options. Instead, a strategic buyer integrates with the target to obtain a better competitive position. The private equity fi rm is more likely to win the takeover competition when information is costlier, its required return premium is smaller, and the strategic buyer’s synergy gains are smaller. Such takeovers by private equity funds improve economic welfare.

KW - Corporate finance

M3 - Paper

ER -

Flor CR, Sørensen PN. Private Equity Acquisitions and Strategic Buyers: Information Discounts versus Synergies. 2019. Paper presented at 11th Annual Hedge Fund and Private Equity Research Conference, Paris, France.