Abstract
We characterize when private equity funds have a competitive advantage over strategic buyers in acquiring a target firm. Using their skill to
mitigate informational frictions, private equity funds cut loss-making 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 fund is more likely to win the
takeover competition when its information skill is greater, its required return
premium is smaller, and the strategic buyer’s synergy gains are smaller. Such
takeovers by private equity funds improve economic welfare.
mitigate informational frictions, private equity funds cut loss-making 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 fund is more likely to win the
takeover competition when its information skill is greater, 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 language | English |
|---|---|
| Publication date | 2019 |
| Number of pages | 44 |
| Publication status | Published - 2019 |
| Event | 27th Finance Forum - Madrid, Spain Duration: 11. Jul 2019 → 12. Jul 2019 |
Conference
| Conference | 27th Finance Forum |
|---|---|
| Country/Territory | Spain |
| City | Madrid |
| Period | 11/07/2019 → 12/07/2019 |
Keywords
- Information Frictions
- Posterior Beliefs
- Takeover Competition
- Welfare